MXG - Maxim Power Corp

[yadayada]

Liquidation story

 

This guy got a write up

http://www.freenpv.com/

 

And there is one on VIC. Trading at 2.4$, worth between 4-5$, with a 1-2 year catalyst because company is in liquidation. More then 50% of shareholders and the board of directors is motivated to liquidate, so risk of funds being malinvested is small.

[sculpin]

Here is a full presentation outlining the value in Maxim. Uncertainty due to FERC fine with US power assets and weak current power pricing in Alberta & NE US is temporarily depressing the share price.

Maxim_Power_Corp_.pdf

[jmp8822]

Anyone that owns this have thoughts on the thin trading? Haven't thrown any orders on the bid, but it looks like I wouldn't be able to buy any. Anyone have success building a position?

[sculpin]

Catalysts Upcoming

 

Sale of Comax – our 100% owned independent utility in France is expected in Q1.

 

Settlement of FERC (Federal Energy Regulatory Commission) lawsuit. This is what led to the cancellation of the previous sale of Maxim’s US assets (MUSA). Expected settlement is small compared to the value of this asset. Once this is resolved Maxim US can be sold.

 

Settlement of Alberta Line Loss lawsuit should bring in substantial cash (see below in NAV) by Q2 2016.

 

Once MUSA & Comax are sold Maxim will hold significant cash and its Alberta assets which can then be sold.

 

Valuation

 

To properly value Maxim, it is necessary to do a SOTP valuation. Currently the Company has 54MM shares out for a market cap of $162 million. Debt only resides in its French & US subsidiaries and will be extinguished upon their divestiture. Book value is currently $5.09 or close to double the current share price. Management has consistently stated that investors will see at least book value upon sale of the Company.

 

Comax assets – I would think they should get at least book value which is $45MM after debt repayment.

 

Line Loss Settlement – gross loss to be repaid to Maxim is $35MM – with penalties, interest and legal fees going back 10 years the final amount Maxim may recoup is up to $70MM.

 

Maxim USA – the value of this asset has appreciated strongly with EBITDA expected to hit over $40MM in 2018 as electricity capacity payments triple and NE US coal & other power plants are retired. We now believe the value of this asset is close to $200MM after debt ($3.70 per share alone). This is confirmed by a recent analysis by Industrial Alliance:

 

“Recent gas asset transactions indicate substantial potential value for MXG’s US fleet relative to the current stock price. In Q3 we witnessed a trio of transactions for merchant natural gas-fired capacity in the US Northeast, with implied multiples in the 7-10x EV/EBITDA range. Although no two assets (or two transactions) are directly identical, if we apply the multiples from the recent transactions to MXG’s US fleet, we arrive at a valuation range of US$140-200M (US$115-175M, net of ~US$25M in associated debt). After currency conversion, the valuation range implies $2.75-4.20/share (compared with MXG’s $2.58 share price). In other words, MXG is trading below the market value of its US assets alone (assuming nothing for France or Alberta). ”

 

Totalling the expected proceeds from above nets approximately $280 to $315MM in cash to the Canadian holding company which has substantial tax loss carry forwards in place. Per share this amounts to $5.15 to $5.80 per share prior to the value of the Canadian power and development assets.

 

The Canadian assets include:

 

Summit Metallurgical coal with 18.9 million tons of high quality met coal with a book value of $25MM

 

Emission credits recently sold for cash of $5MM with an additional $15MM at the same pricing

 

Milner coal/NG generating plant with approval for a new 520MW NG fired plant in the same location with all electrical connections, water license, fuel delivery infrastructure and ops team. Milner can currently run as a peaker plant on either coal or NG until 2019 generating up to $20MM Ebitda/annum

 

Construction ready 190 MW NG fired peaking station approved in Bruderheim Alberta

 

Approved 200 MW wind generation project in SW Alberta waiting on improved Alberta pricing and NDP driven wind power purchase agreements to allow for economic operation.

 

Maxim should hold in excess of $5 per share in cash along with the above listed Alberta assets at some point in the next year. The entire Company could then be sold (hopefully into an improving Alberta power market) by sometime in 2017 at the cash level plus the value resident in the Alberta assets. This value could be substantial given the Alberta NDP & federal governments’ desire to see faster retirement of coal gen capacity (50% of current Alberta generation) and replacement with cleaner NG and wind generation.

[sculpin]

From the most recent edition of Value Investor Insight on Canada's best small cap investor over the last 5 years...

 

What outside of technology interests you?

 

DB: Maxim Power [MXG:CN] is a power-generation company with assets in the northeastern U.S., in Alberta, Canada and in France. The business generates decent cash flow, but it’s really sub-scale and the market has shown no interest in giving the stock more than a distressed valuation. So the company can’t raise more equity to expand and just kind of goes along locked in no-growth mode. The book value of the company, which we consider a conservative measure of intrinsic value, is around C$5.50 per share, while the current stock price is just under C$3. In the end, we think this very likely gets sold in the next 12 to 24 months and that discount to intrinsic value closes.

 

http://www.penderfund.com/wp-content/uploads/2016/01/Value-Investor-Insight-31-Dec-2015-Dave-Barr-Feature-Reprint.pdf

[Cardboard]

For people looking for a really undervalued company, in a defensive business, with many catalysts coming to make surface value, this one has to be on the top of the list:

 

1- The FERC resolution is imminent. A news release or update will come up at any time indicating how much they will need to pay. The amount is very small relative to the value of the U.S. assets but, its resolution will allow for buyers to re-engage.

 

2- Canadian earnings will benefit from plant reduced staffing ($3.1 million/year), using Grande Cache Coal vs Coal Valley ($11.4 to $13.4 million/year) and Line Loss resolution on-going savings ($3 to $5 million a year). Alberta prices are down but, management was clear that EBITDA would increase in Q4 in the discussion around their credit line.

 

3- A substantial amount is going to be received within 3 months for past years on the Line Loss settlement once reimbursement for interest and civil costs are figured out or min $38 million.

 

4- The M3 project is a natural gas-fired cogen that will expand the Milner plant (M1) by 86 MW or 57% and with its exhaust energy will displace coal use at M1. With the NDP war on coal in Alberta, any acceleration for coal phase out is welcomed.

 

5- While less definitive, a sale of Comax or the France assets has been in the works for a while.

 

Another defensive aspect of this name that you may not catch right away looking at the balance sheet is that all debt belongs to the French and U.S. subsidiary. That leaves $10.1 million of net cash at the Canadian level.

 

Over 50% of shares are held by 3 individuals with two being directors.

 

There is also a lot of other potential things that could occur to create value: sale of coal mine, sale of two approved clean energy projects in Alberta, expansion in New Jersey, further expansion of Milner. They also have a lot of tax NOL's.

 

Cardboard

[jmp8822]

CEO is removed via proxy - see link at bottom.

 

Thoughts on this from any shareholders/other lurkers? One of the reasons I haven't bought this stock yet is because I didn't especially trust the direction of the CEO. It seems like this could be a good thing for value realization. The amount of time this 'liqudation' is taking is a huge red flag to me. Perhaps the major shareholders were feeling the same way. Does anyone have the pulse as to why the CEO was removed? Value is clearly there but the whole 'reinvest the sale money' from the U.S. and French sales seems like a disaster waiting to happen. Maybe the next CEO will clearly say shareholders will get the money back via buyback/dividend. That could be a homerun.

 

http://maximpowercorp.mwnewsroom.com/press-releases/maxim-power-corp-announces-interim-chief-executive-officer-tsx-mxg-201606021057512001

[sculpin]

Now that Bobenic is gone, finally sold Comax for about $35mm Cdn net of the debt. Hopefully sale of the US business and collection of the substantial amount owed for the line loss settlement (>$40mm).

 

Maxim Power to sell Comax France for 47 million euros

 

Maxim Power Corp (2) (C:MXG)

Shares Issued 54,301,391

Last Close 9/12/2016 $2.56

Tuesday September 13 2016 - News Release

 

Mr. Michael Mayder reports

 

MAXIM POWER CORP. ENTERS AGREEMENT TO SELL COMAX FRANCE S.A.S.

 

Maxim Power Corp. has entered into an agreement to sell 100 per cent of its ownership interest in Comax France SAS and its parent, Maxim Power Europe BV, to Vine Luxembourg SARL, an affiliate of Basalt Infrastructure Partners LP, for 47 million euros, including the assumption of 23 million euros of net debt, resulting in sales proceeds of approximately 24 million euros, six million euros of which is contingent on certain future events.

 

Comax is Maxim's wholly owned subsidiary that owns and operates Maxim's 32 natural-gas-fired electric generation facilities in France. These facilities have an aggregate generating capacity of 176 megawatts.

 

The sale of Comax is scheduled to close during the fourth quarter of 2016, subject to regulatory approvals and customary closing conditions. Comax sale proceeds will be used to reduce net debt in Maxim's North American operations.

[gurpaul88]

http://www.marketwired.com/press-release/maxim-power-corp-enters-into-settlement-agreement-with-federal-energy-regulatory-commission-tsx-mxg-2161427.htm

[sculpin]

Zero value attributed to Maxim's 100% ownership of Summit Coal makes it a potential valuable option in Met Coal - prices having spiked to $210US/tonne from $70/tonne in 2015. Believe the mining equipment purchased in the last 5 years still is stored there....

 

Pg 22 http://www.maximpowercorp.com/_html/investor_centre/documents/ShareholderPresentation2-Jun-16.pdf

 

Summit Coal Limited Partnership ("SUMMIT")

 

SUMMIT is MAXIM's development initiative located north of Grande Cache, Alberta that owns metallurgical coal leases for Mine 14 ("M14") and Mine 16S ("M16S"). Current estimates for M14 are 18.9 million tonnes of low-mid volatile metallurgical coal reserves with a mine life of 17 years based on the NI 43-101 Technical Report filed on SEDAR on March 21, 2013. M16S is located 30 kilometers northwest of M14 and represents 1,792 hectares or 29% of SUMMIT's total area of coal leases. A NI 43-101 Technical Report has not been prepared for M16S.

 

M14 is permitted for a run-of-mine production rate of up to 1,300,000 tonnes per year. MAXIM has also received approval from the Alberta Energy Regulator to construct and operate a Coal Beneficiation Plant. This Coal Beneficiation Plant, to be located on MAXIM's existing M1 industrial complex, will bifurcate M14's run-of-mine coal into an estimated annual production of 950,000 tonnes of high-quality, low-mid volatile and metallurgical coal for shipment to export markets. These approvals provide SUMMIT with all of the requisite government and regulatory approvals to construct and operate M14. In November 2014, MAXIM received delivery of five pieces of mine equipment including two continuous miners and three shuttle cars. The units are in storage awaiting development of M14.

 

 

$1 Coal Mines Become Jackpots After Prices Surge

 

September 29, 2016 — 5:00 PM EDT Updated on September 30, 2016 — 12:26 AM EDT

 

Vale, Sumitomo sold met coal mine to Stanmore Coal last year

 

Metallurgical coal prices have more than doubled this year

 

Buying bargain-bin coal mines amid the worst commodity slump in a generation has turned into a savvy bet as prices of the fuel surge.

Stanmore Coal Ltd. bought the Isaac Plains metallurgical coal mine in Australia for A$1 in July 2015 from Brazilian miner Vale SA and Japan’s Sumitomo Corp. when the price of met coal, used to make steel, averaged the lowest in about a decade and just three years after the mine was valued at A$860 million ($659 million). One year later, spot prices have soared above $200 a metric ton as China’s steel mills crank out record volumes while its mines slow production.

 

"It seems like we did get our timing right in this instance," Stanmore Chief Executive Officer Nick Jorss said in a phone interview from Sydney. "When we bought Isaac Plains, hard coking coal was in the $70s. We’ve had pretty substantial movement since then."

Coking coal has surged almost 170 percent this year as output from China, the world’s biggest miner, tumbles under pressure from the government to cut overcapacity even as demand from steelmakers surges. Prices reached $210.80 a ton as of Thursday, according to The Steel Index.

Stanmore, which has seen its share price double since the beginning of last month, isn’t the only miner who bought low. Australia’s TerraCom Ltd. last week completed the purchase of the Blair Athol thermal coal mine, also for A$1, from Rio Tinto Group as the world’s second-biggest miner exits some of its Australian coal portfolio. Thermal coal in Australia, while unable to match coking coal’s rally, has risen more than 50 percent this year.

 

‘Brave Enough’

 

Miners who struck deals before the recent price surge were well placed to profit from the unexpected revival, even if they’re small producers, said Robin Griffin, research director for global metallurgical coal markets at Wood Mackenzie Ltd., a consultant.

"They were brave enough to make the call to try and make it work," Griffin said. "They wouldn’t have foreseen this spike, but they would have had a more optimistic view perhaps. So, in some respects, you could argue their gut feeling was justified."

While the $1 headline price appears a bargain, Griffin notes the deals come with costly commitments. Stanmore is responsible for a $32 million obligation for the Isaac Plains mine, in Queensland state, while TerraCom is also on the hook for costs related to rehabilitating the mine.

 

Quarterly Contracts

 

Stanmore is targeting 1.1 million metric tons of coal a year from Isaac Plains, while TerraCom hopes to ship 2 million tons annually. Australia, the world’s largest coking coal producer, exported 186 million tons last year, according to Wood Mackenzie.

Japan’s Electric Power Development Co., which owned Blair Athol with Rio Tinto and is known as J-Power, said it decided to sell its stake to a company that was willing to recover the remaining coal resources, according to a J-Power spokesman, who asked not to be named, citing company policy. Sumitomo Corp., Rio Tinto and Vale declined to comment.

Stanmore’s Jorss expects coking coal contract prices for the fourth quarter to rise above $150 a ton, from the current quarter’s $92.50. Analysts at Macquarie Group Ltd. forecast deals will be agreed at $170 a ton, which is still far short of the record of $330 a ton in 2011.

“If they have material to sell, the funds will just roar in this quarter,” Wood Mackenzie’s Griffin said. “If prices continue into the next quarter and into the first quarter of 2017, it will look like a master stroke."

TerraCom Chairman Cameron McRae, a former Rio Tinto executive, said there were good bargains to be found in unwanted coal assets.

"The extent of the commodity down-cycle has put a lot of miners under pressure and you’ve seen companies sell up because their balance sheets require it," McRae said. "When you see a significant down-cycle you will always see assets come onto the market."

 

http://www.bloomberg.com/news/articles/2016-09-29/-1-coal-mines-turn-to-jackpots-as-china-s-cuts-power-price-rally

 

[sculpin]

Coal has been one of the best performing commodities this year. Spot price of Australian coking coal, used to make steel, has surged to $US213.40 a tonne, according to the Steel Index, a data provider. That is double the price it sold for in mid-August, and almost triple its price at the beginning of 2016.

 

Thermal coal, burned for electricity, has also rallied, and Australian prices are trading up almost 70 per cent on the start of the year.

 

Prices have climbed because of cuts to production in China, which has traditionally produced much of the coal it needs for its steel mills and power plants. That has sparked a buying frenzy in the international market.

 

China’s coal imports surged to 20 million tonnes in August, up 48 per cent year-on-year, according to the latest available data from the general administration of Customs.

[sculpin]

Maxim Power, the Buffalo Bills and the end of a drought

 

We made a brief reference to the Buffalo Bills at the start of this letter. As many of you know (and a

few of you relish in reminding Anthony) the sad sack Bills are mired in the longest playoff drought in

major professional sports. It has been 16 years since the team has even appeared in a playoff game,

nonetheless won an actual post-season contest. It has been a period that has tried the already testedpatience of the team’s supporters – a group that previously suffered through four straight Super Bowl losses and before that, decades of mostly irrelevance.

 

Shareholders of Maxim Power Corp can likely relate to that sort of suffering. The share price of Maxim currently resides approximately where it did some 16 years ago. That is some 64 quarters of blech, an apt description of what watching Bills football has been like during that same period. Thankfully we have not been invested in Maxim for as long as Bills fans have suffered through their playoff drought…it has only felt like it.

 

Maxim, as we have discussed in past letters, has been a failure as a public company. It was created as agrab bag of assets with the hopes that public market investors would take a shining to it and attribute the company a high multiple. With this high multiple, the company would be able to raise new, lowcost capital which it could use to accretively buy or develop additional power generation projects. Unfortunately, this never really came to fruition for Maxim. The company was unable to successfully capture the fancy of the investment community and, as such, has spent much of its existence being overlooked and ignored.

 

We got involved in the stock in 2012. Our belief at that time was that the company had given up on its aspirations for growth and was looking to sell off its portfolio of power generation assets to the highest bidders. That belief was borne out in early 2013 when the company announced it had hired bankers to sell both its U.S. and French operations. This was followed up with the announcement that it had found a buyer for the U.S assets, known as MUSA or Maxim USA. That deal was for US$112 million. Our engagement with Maxim appeared to be one that would be relatively swift and extremely financially rewarding.

 

Unfortunately, that deal was scuttled in December of 2013 given an inquiry by the Federal Energy

Regulatory Commission (“FERC”). Between December 2013 and this past Tuesday investors have been waiting for something…anything in terms of progress from Maxim.

Just two days ago we finally saw some signs of life from what has been one of our longest-standing

holdings. Maxim’s stock was halted1 on the pending news that the company was divesting its French assets, Comax France S.A.S., for EUR47 million. This deal is only about three years later that we thought it would happen but, hey, at least they finally consummated a deal.

 

This transaction goes some way toward simplifying the company’s geographically disparate asset base. While the reaction was muted once trading in the stock was re-opened, we believe this represents material positive news. The sale of the smallest of Maxim’s three areas of business is proof that under the newly appointed CEO, Bruce Chernoff, Maxim is determined to realize the difference between the sum of its parts and its absurdly low trading value. Chernoff is a major shareholder of Maxim (and has been since before J.P. Losman was named the Bills starting quarterback) and has no incentive to do anything but realize the highest value for the assets. We view him much more as an executor than as a typical CEO of a going concern company.

 

A resolution to the FERC inquiry should be forthcoming which would allow for the U.S. assets to be putback on the block. In fact, MUSA is likely already being shopped allowing for a quick close upon a

settlement or dismissal of the FERC case. There is no indication of impairment of the business while

multiples paid for such properties have only expanded since the aborted sale was announced. If

nothing else, the currency impact from a declining loonie would be significant to Maxim shareholders even if the sale price today were the same agreed to back in 2013.

 

Sadly for Bills fans, the start of this season has provided no tangible signs that this year will end any

differently than the previous 16. Thankfully for Maxim’s long-suffering shareholders, the outlook

appears a bit rosier. With the sale of Comax, hopefully followed by other major announcements, we

have received an indication that at least one of these two painful droughts may finally be coming to an end.

 

http://www.broadviewcapital.ca/wp-content/uploads/August-2016-Maxim-Power-The-end-may-finally-be-near.pdf

 

 

[sculpin]

Six small Canadian companies with takeover potential

 

SHIRLEY WON

Special to The Globe and Mail

Published Friday, Oct. 07, 2016 5:00AM EDT

 

 

The pick: Maxim Power Corp. (MXG-TSX)

Close at press time: $3.15 a share

52-week range: $2.34 to $3.32 a share

David Barr, PenderFund Capital Management Ltd., Vancouver

 

Shares of this Calgary-based independent power producer have struggled but are now attractive as a liquidation play, says Mr. Barr. Maxim, of which insiders own a sizable chunk of shares, operates power plants in Alberta, the United States and France. In 2012, it announced a strategic review to maximize the value of its foreign units, but regulatory problems scuttled a deal to sell its U.S. assets. Maxim chairman Bruce Chernoff, a major shareholder who was appointed interim CEO last summer, is now “probably highly motivated to sell the assets and wind it up,” Mr. Barr said. Last month, Maxim struck a deal to sell its French assets. Recently, Maxim agreed to a deal with a U.S. energy regulator that could pave the way for a buyer, he added. “We think the company trades at a substantial discount to what the company could sell its assets for. We think Maxim is worth about $5 a share.”

 

http://www.theglobeandmail.com/globe-investor/six-small-canadian-companies-with-takeover-potential/article32264654/

[sculpin]

http://seekingalpha.com/article/4011448-maxim-power-liquidation-final-innings?app=1&auth_param=46n23:1bvsjeo:e292de01761dc7a44228a7e2c6462221&uprof=44

 

 

Tuesday, 11 October 2016

 

The End of Two Stories (TSX:DCI, MXG)

As suspected in my last post on Directcash,

 

DirectCash is being acquired by Cardtronics for $19 a share, leading to a roughly 100% absolutely return (incl dividends) in about 9 months since that post. A little more than I thought they would be bought out for, and a little faster.

 

But while this may be end of DirectCash's story, it also happens to be the beginning of the end for another Canadian company, Maxim Power. And shareholders of Maxim may do just as well.

 

Enjoy.

 

An excerpt from SA.

 

Valuation

 

Current EV of $240m CAD - $60m debt, $180m equity.

 

France Sale - $70m CAD

USA Sale - $220m - $290m CAD (after $10m CAD FERC fine)

Canadian Business - $0m

Summit Coal - $0m

Alberta LLS Restitution - $40m to $50m Canadian

 

EV based on Sale Proceeds: C$330m to C$410m

Less Debt of C$60m

Total Equity Value: C$270m to C$350m

Per Share: C$5.00 to C$6.50

 

*Note: Sale prices of the US and French businesses would be somewhat in excess of book value, and so would incur some capital gains taxes, but would be mostly shielded by $15m in unrecognized capital loss DTAs. Maxim also has operating loss DTAs in excess of >$100m.

...While maintaining the optionality of the Canadian businesses being worth >$0.

 

$55m CAD in additional value would increase Maxim's per share liquidation value by C$1.

[rukawa]

“Recent gas asset transactions indicate substantial potential value for MXG’s US fleet relative to the current stock price. In Q3 we witnessed a trio of transactions for merchant natural gas-fired capacity in the US Northeast, with implied multiples in the 7-10x EV/EBITDA range. Although no two assets (or two transactions) are directly identical, if we apply the multiples from the recent transactions to MXG’s US fleet, we arrive at a valuation range of US$140-200M (US$115-175M, net of ~US$25M in associated debt). After currency conversion, the valuation range implies $2.75-4.20/share (compared with MXG’s $2.58 share price). In other words, MXG is trading below the market value of its US assets alone (assuming nothing for France or Alberta). ”

 

Where does the 40mm for Maxim USA come from. In the seeking alpha article it indicates about 27mm USD EBITDA for Maxim's NorthEast US assets.

 

Also the presentation you posted earlier from Broadview capital indicated a 9x EBITDA sale price for the French assets but they sold at 47mm instead of 93mm as indicated which implies an EBITDA multiple of 4.5 for the French assets. Given that the SOP valuation depends so much on the sale of US assets and its possible to get this so wrong I am not so sure about its value. Also EBIDTA seems to be predicted as follows for the US assets:

 

2017: 15mm

2018: 27mm

2019: 25mm

2020: 20mm

 

which means average EBITDA is really around 20mm. So my SOP is more like:

185 (US sale = 7*20mm ebitda = 140 usd = 185 cad)

70 ( french sale)

60 (net debt)

40 (alberta restitution)

SOP: 185+70-60+40=235

Share price: 235/52.4=4.5

4.50 is the value of this stock approximately

 

I'm also concerned about the deferred tax liabililties and provision for decommissioning. AFAIK this is not accounted for in any of the SOP valuations I see (including my own above) but its on the balance sheet. If I include these I get:

 

235 - 18(decom) - 12 (tax) = 200mm

200mm/52 = 4

 

What am I doing wrong?

[valcont]

2017: 15mm

2018: 27mm

2019: 25mm

2020: 20mm

 

which means average EBITDA is really around 20mm. So my SOP is more like:

185 (US sale = 7*20mm ebitda = 140 usd = 185 cad)

70 ( french sale)

60 (net debt)

40 (alberta restitution)

SOP: 185+70-60+40=235

Share price: 235/52.4=4.5

4.50 is the value of this stock approximately

 

I'm also concerned about the deferred tax liabililties and provision for decommissioning. AFAIK this is not accounted for in any of the SOP valuations I see (including my own above) but its on the balance sheet. If I include these I get:

 

235 - 18(decom) - 12 (tax) = 200mm

200mm/52 = 4

 

What am I doing wrong?

 

How are you coming up with 60m debt. I get 86m from 2nd qtr - 38m (french sale) = 48m . Also the average is about 22m *7x = 154 USD ~ 200m CAD

( I think they can easily get 7x , since their last sale with MUSA was at 6.7-7x)

[rukawa]

How are you coming up with 60m debt. I get 86m from 2nd qtr - 38m (french sale) = 48m . Also the average is about 22m *7x = 154 USD ~ 200m CAD

( I think they can easily get 7x , since their last sale with MUSA was at 6.7-7x)

 

The 60m figure excludes the provision for decomissioning and tax liabilities from the net debt. I think they should be included though so I agree that 86m makes sense. However I don't know why you subtract 38 m from this number. I already included total sales proceeds for the french asset which is 70mm CAD. See the press release from Maxim:

 

http://www.marketwired.com/press-release/maxim-power-corp-enters-agreement-to-sell-comax-france-sas-tsx-mxg-2158072.htm

 

CALGARY, ALBERTA--(Marketwired - Sept. 13, 2016) - Maxim Power Corp. ("MAXIM" or the "Corporation") (TSX:MXG) announced today that it has entered into an agreement to sell 100% of its ownership interest in Comax France S.A.S. ("COMAX") and its parent, Maxim Power Europe B.V., to Vine Luxembourg SARL, an affiliate of Basalt Infrastructure Partners LP, for EUR47 million including the assumption of EUR23 million of net debt resulting in sales proceeds of approximately EUR24 million, EUR6 million of which is contingent on certain future events.

 

The 47 million EUR translates to 70mm CAD. You can't subtract off the debt portion of the french asset as well because if you do you need to remove this from the 70mm and you get 34.61mm CAD (24mm EUR) for net proceeds of french sale.

 

Anyways SOP based on 86m debt and using 22m EBITDA for the US asset gives me a 4.27 dollar/share price:

200 (US sale = 7*22mm ebitda = 154 usd = 200 cad)

70 ( french sale)

86 (net debt)

40 (alberta restitution)

SOP: 200+70-86+40=224

Share price: 224/52.4=4.27

 

[valcont]

 

The 47 million EUR translates to 70mm CAD. You can't subtract off the debt portion of the french asset as well because if you do you need to remove this from the 70mm and you get 34.61mm CAD (24mm EUR) for net proceeds of french sale.

 

Anyways SOP based on 86m debt and using 22m EBITDA for the US asset gives me a 4.27 dollar/share price:

200 (US sale = 7*22mm ebitda = 154 usd = 200 cad)

70 ( french sale)

86 (net debt)

40 (alberta restitution)

SOP: 200+70-86+40=224

Share price: 224/52.4=4.27

 

You are right. I thought you didn't net out the French sale. So this is really an EBITDA multiple and an Alberta oil play. I think the seeking alpha article is overly optimistic about 25m EBITDA and 7.2x multiple for US assets. Also the timeline for restitution recovery is not clear. On the positive side, the Canadian business is valued at zero. The coal business is worthless imo but the energy may have some value if the oil prices moves up.

 

Overall another play on the energy prices. Several things have to go right for this to be a multi bagger.  Buffet's rule about multiplying probabilities for each event makes sense here. 

[Cardboard]

I think that you guys are too conservative on the U.S. multiple. There is a power shortage developing on the East Coast because of coal-fired plants and nuclear reactors shutdowns due to unbearable costs while demand and population growth remains.

 

They were offered $112 million U.S. in 2013 by Rockland Capital (an investment company looking to make a capital gain on a trade over time so had to be opportunistic) while the outlook didn't look as good in terms of EBITDA and price increases. With that market tightening, having the right assets (natural gas) with capacity for expansion and permitting in place in a ZIRP world, 10 times EBITDA ($20 million) is not a crazy multiple for the Northeast utility sector.

 

The French sale on the other hand was disappointing because of likely 3 issues:

- They were a forced seller with the bank breathing down their neck after having already given them a lot of rope. Now solved.

- There was an unsettled dispute with a contractor.

- And more importantly: "On May 28, 2016, the French government announced that it will be discontinuing the contract renewal process for cogeneration electricity produced and sold to Electricité de France."

Means that it is impossible to predict with certainty the EBITDA of these assets in 2019 and beyond.

 

Regarding Alberta, they are owed $38 million for the Line loss settlement. Legal and interest which is being debated could add another $30 million since this has been going on between 2006 and 2015. They will definitely get something. How much exactly?

 

So right there, I am adding $60 + $30 million to your SOP which is another $1.70/share. And I see that you add zero value to the Canadian assets while you are discounting the liabilities in full including deferred tax.

 

I would like to think that companies in Alberta such as Transalta, Canadian Utilities and others who have to move away entirely from coal-fired production over the next decade or so will be interested in natural gas and wind projects that Maxim has already on the drawing board with permits in place and a plant that is already operating at reduced capacity on natural gas and with again permits to really expand capacity (M2 and M3). They also have left $15 million of SO2 credits if I am not mistaken. They have lots of NOL's. Then they have this metallurgical coal project. Not thermal coal. All of this has to be worth at least the environmental and deferred tax liability.

 

That is another $30 million to your SOP or $0.57/share.

 

It is impossible IMO to predict with certainty what will be the eventual liquidation or take-out value of this company but, I got $6.50/share by simply changing a few of your assumptions and I don't think it is a stretch. I assume that some catalysts will be better than expected and some worst. Even if it only yields $5/share with management now clearly focused on getting this done quickly, the rate of return from here looks appealing. If a permanent CEO is appointed I would be worried but, as long as Chernoff is in place, the timetable for a swift resolution is there.

 

Cardboard

[valcont]

I think that you guys are too conservative on the U.S. multiple. There is a power shortage developing on the East Coast because of coal-fired plants and nuclear reactors shutdowns due to unbearable costs while demand and population growth remains.

 

They were offered $112 million U.S. in 2013 by Rockland Capital (an investment company looking to make a capital gain on a trade over time so had to be opportunistic) while the outlook didn't look as good in terms of EBITDA and price increases. With that market tightening, having the right assets (natural gas) with capacity for expansion and permitting in place in a ZIRP world, 10 times EBITDA ($20 million) is not a crazy multiple for the Northeast utility sector.

 

The French sale on the other hand was disappointing because of likely 3 issues:

- They were a forced seller with the bank breathing down their neck after having already given them a lot of rope. Now solved.

- There was an unsettled dispute with a contractor.

- And more importantly: "On May 28, 2016, the French government announced that it will be discontinuing the contract renewal process for cogeneration electricity produced and sold to Electricité de France."

Means that it is impossible to predict with certainty the EBITDA of these assets in 2019 and beyond.

 

Regarding Alberta, they are owed $38 million for the Line loss settlement. Legal and interest which is being debated could add another $30 million since this has been going on between 2006 and 2015. They will definitely get something. How much exactly?

 

So right there, I am adding $60 + $30 million to your SOP which is another $1.70/share. And I see that you add zero value to the Canadian assets while you are discounting the liabilities in full including deferred tax.

 

I would like to think that companies in Alberta such as Transalta, Canadian Utilities and others who have to move away entirely from coal-fired production over the next decade or so will be interested in natural gas and wind projects that Maxim has already on the drawing board with permits in place and a plant that is already operating at reduced capacity on natural gas and with again permits to really expand capacity (M2 and M3). They also have left $15 million of SO2 credits if I am not mistaken. They have lots of NOL's. Then they have this metallurgical coal project. Not thermal coal. All of this has to be worth at least the environmental and deferred tax liability.

 

That is another $30 million to your SOP or $0.57/share.

 

It is impossible IMO to predict with certainty what will be the eventual liquidation or take-out value of this company but, I got $6.50/share by simply changing a few of your assumptions and I don't think it is a stretch. I assume that some catalysts will be better than expected and some worst. Even if it only yields $5/share with management now clearly focused on getting this done quickly, the rate of return from here looks appealing. If a permanent CEO is appointed I would be worried but, as long as Chernoff is in place, the timetable for a swift resolution is there.

 

Cardboard

 

You are right on the multiples and the shortage in the northeast . I have attached a report from ISO-NE that discusses it in length. Also the S&P valuation

report that estimates EBITDA multiple of 9.2x for the base load IPP on Page 8. Thanks for the feedback.

2016_reo.pdf

ey-capital-outlook-power-and-utilities.pdf

[sculpin]

Excellent analysis, Cardboard. Thanks for the reports Valcont.

[sculpin]

Maxim Power Confirms Sale And Liquidation

Nov 11, 2016 7:58 AM

 

http://seekingalpha.com/instablog/44534176-leefarnam/4932544-maxim-power-confirms-sale-liquidation

 

TSX:MXG

 

OTC:MXGFF

 

With it's Q3 release,

 

"STRATEGIC REVIEW

 

Following the agreement to sell COMAX, the Corporation commenced consideration of various strategic and financing alternatives potentially available to MAXIM in relation to its investments in the United States and Canada. MAXIM currently owns and operates 446 MW of generating capacity in the United States and 156 MW of generating capacity in Canada. MAXIM also has permitted power generation development projects totalling up to 996 MW (refer to Growth Initiatives section below) and a permitted metallurgical coal development project in Alberta. MAXIM will provide updates as these considerations progress."

 

Maxim also confirmed it's base estimated proceeds from the Line Loss Provision settlement with the Alberta Energy System Operator as $42m. Interest, penalties, and legal fees will increase this amount.

 

"ALBERTA UTILITIES COMMISSION ("AUC") LOSS FACTOR DECISION

 

On September 28, 2016 the AUC asserted its position through Decision 790-D04-2016 (the "Decision") on several preliminary matters related to remedy under Module C of Milner Power Inc.'s ("Milner") complaint relating to the Alberta Electric System Operator ("AESO") Line Loss Rule. The Decision confirmed, among other things, that the AUC's proceedings will establish compensation to Milner that will include an interest provision at the Bank of Canada Bank Rate plus one and one half percent, and that parties will not be compensated for their cost of participating in the proceedings. MAXIM's internal calculations are that overpayments of $41.8 million were made by Milner to the AESO over the period from January 1, 2006 to September 30, 2016. In recognition of the possibility of delays in determining the final remedy to Milner, Milner applied to the AUC on November 9, 2016 for interim relief. As at the date of this press release, the implementation date of the new rule under Module B and the amount and timing of compensation under Module C cannot be determined."

 

As noted in my SA Article on Maxim,

I originally estimated liquidation proceeds to shareholders to be between $5 and $6.50 CAD per share.

 

However, since that time some incremental changes to the thesis have occured, namely:

 

Trump

 

- Weakening of the CAD vs the USD. Since the overwhelming asset value of the company is in USD, this provides incremental support to the estimated proceeds. Further weakening may push ultimate CAD proceeds to shareholders above the estimated range.

 

- Surge in coal (met and coking) prices from reduced Chinese supply as the government curtails the most inefficient and polluting mines as well as what a Trump Monarchy may mean for North American coal demand. From a low of under $80 USD/ton last year, metallurgical coal is now selling for upwards of $200USD/ton. The value of Summit Coal, Maxim's permitted and shovel ready metallurgical coal mine, was previously valued at $0. It is now increasingly likely this mine is worth substantially more than $0.

 

- The Alberta Government has proposed 400 MW of immediate green energy project tendering, with 3000 MW up to 2030 to be added. As a reminder, Maxim owns prime wind generation land in Alberta's Southeast with wind energy potential up to 200 MW. I previously valued this at 0 but now anticipate incremental value from obtaining a contract and then selling to an investor looking for regulated returns (Berkshire, CPPIB, etc.).

 

As a reminder, every $55m in additional value adds $1 per share in value to Maxim's liquidation value.

All in all, Maxim's thesis continues to proceed on track, with proceeds likely at the higher end, if not in excess of, my previously estimated range.

[sculpin]

Some IAS points....

 

United States

 

Settlement agreement paves the way for asset monetization. On September 26, 2016, MXG announced that FERC had

approved an agreement resolving outstanding investigations, claims and allegations that FERC has pursued against MXG.

Under terms of the settlement, MXG agreed to pay US$8M to FERC over a two-year period. We view the settlement as highly

favourable for shareholders, since it effectively clears the way for MXG to pursue the sale of its US operations.

 

Both intrinsic value and relative valuation point to >$3/sh value for the US division. As we have calculated in previous

Research Updates, we continue to believe that the intrinsic value of MXG’s US assets are worth >$150M (>$2.50/sh, net of

debt), based on annual EBITDA of $40-50M/year over the next three years (driven by higher capacity payments) and

>$20M/year thereafter. Asset transactions for gas-fired capacity in the US Northeast continue to indicate valuations above 7x

EV/EBITDA, which supports our intrinsic value calculation.

 

Alberta

 

Coal compensation framework could jolt the market. As highlighted in our recent Alberta Power Market Update1

, we

anticipate an announcement from the Government of Alberta (GoA) by the end of the year regarding coal phase-out

compensation. The GoA announcement is expected to provide greater clarity on the underlying structure of the Alberta power

market, which should in turn provide visibility for MXG on the longer-term outlook for M1, as well as its Alberta-based nonrenewable

development opportunities.

 

Renewable solicitation could offer an opportunity for MXG to develop the ~200MW Buffalo Atlee wind prospect. As

highlighted in another recent Alberta Power Market Update2

, the GoA and Alberta Electric System Operator (AESO) have

unveiled details of a large-scale renewable solicitation process. We believe that MXG’s Buffalo Atlee prospect is well-suited to

participate in the process, although the RFP is expected to be highly competitive and there are no guarantees that MXG will be

successful in obtaining a long-term contract for the prospect.

 

Market power prices remain subdued in Alberta (for now). Alberta market power prices remained weak in Q3/16

(~$18/MWh on average), but rebounded off Q2/16 lows (~$15/MWh). Meanwhile, the forward price curve remains relatively

subdued and broadly lower than three months ago (still <$40/MWh through 2018, rising gradually toward $60/MWh by 2021,

as illustrated below). MXG has extended its financial hedging initiatives by locking in the sale of 95-100MW of capacity

through the end of Q1/17 at fixed prices between $30-35/MWh.

 

 

[sculpin]

Industrial Alliance...

 

Yesterday afternoon (November 23), the Government of Alberta (GoA) and

Alberta Electric System Operator (AESO) announced their intent to introduce a

capacity market structure into the Alberta power market.

 

Maxim Power Corp. (MXG-T, Speculative Buy, Target $4.50)

 

Capacity payments support potential conversion/expansion of M1. We view the capacity market announcement as positive

for MXG. The Company’s 150MW Milner power plant (M1) is already expected to operate on a reduced-capacity basis as a

natural gas-fired power plant beyond 2019. The plant could easily be expanded by ~86MW (M3), and this investment would

be supported by the certainty offered from the new capacity payment system. Further expansion of the facility with two new

gas turbines could add 520MW of capacity (M2), although as mentioned previously, newbuild gas may be difficult to justify,

even with capacity payments in place. Ultimately, we believe the capacity payment system could underpin longer-term

economics for MXG in the Alberta market.

 

We are reiterating our Speculative Buy rating and $4.50 price target.

 

 

[Cardboard]

I would expect some good news before Christmas or on their U.S. business sale. With the exchange rate as it is and very solid multiples paid for power assets, the timing could not be better.

 

They also mentioned back in Q1 that they would look for a buyer of Summit or their met. coal asset once prices had recovered and they sure did!

 

What happens to M1 and their greenfield projects is a bigger question to me. Will they develop them on their own with that cash, enter into joint ventures or sell them? They seem to have a new executive based on recent share awards who has an interesting background.

 

This settlement with coal power producers certainly helped their valuation (TA especially) and may give them the certainty required to invest in the future or into new energy projects such as the ones that Maxim has on the drawing board and with required permits.