Good day, ladies and gentlemen, and welcome to the Polaris Infrastructure Inc third quarter 2021 earnings conference call. At this time, all participants have been placed on a listen-only mode, and the floor will be opened for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Anton Jelic, CFO. Sir, the floor is yours.
Thanks, Kate. Good morning, everyone, and welcome to the 2021 third quarter earnings call for Polaris Infrastructure Inc. In addition to the press releases issued earlier today, you can find our financial statements and MD&A on both SEDAR and on our corporate website at polarisinfrastructure.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 Infrastructure Inc and 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 annual information form for the year ended December 31st, 2020.
I'm joined this morning, as always, by Marc Murnaghan, Chief Executive Officer of Polaris. At this time, I'll walk through our financial highlights. Power generation. Consolidated power generation for the nine months ending September 30th, 2021 and 2020 were 480,981 MWh and 490,143 MWh, respectively. These production figures are net of all plant downtime, both planned and unplanned. With respect to Nicaragua, we saw total megawatt hours of 120,838 in the third quarter of 2021 versus 118,857 MWh in the same period last year.
In Peru, total megawatt hours in the third quarter of 2021 was 28,482 versus 23,337 in the same three months period last year. Revenue was $14.8 million during the three months ending September 30th compared to $17.1 million in the same period last year, lower due to the amended PPA price at San Jacinto, partly offset by higher production from 8 de Agosto and El Carmen. Revenue was $44.6 million during the nine months ended September 30th, 2021 compared to $56.2 million in the same period last year. Net earnings attributable to owners was $1.4 million for the nine months ended September 30th, 2021 compared to $4.7 million earnings for the same period last year.
This decrease was attributed mainly to lower revenue and higher direct costs and G&A expenses. The decrease was partly offset by other gains resulting from the sale of certain investments, insurance proceeds, and the mark-to-market accounting adjustments on certain liabilities. Adjusted EBITDA. Adjusted EBITDA, a non-GAAP measure used by the company, was $32.7 million for the nine months ended September 30th, 2021 compared to $38.7 million for the same period in 2020, principally as a net result of the lower revenue, higher direct costs and expenses. Cash generation.
Net cash from operating activities for the nine months ended September 30th of $33.9 million increased by $3.8 million from the same period in 2020, mainly due to a favorable change in non-cash working capital due to the improved accounts receivable collection during the period and lower interest paid, partly offset by lower revenue and higher costs compared to the same period last year. Net cash used in investing activities for the nine months ended September 30th, 2021 was $8.6 million compared to $2.2 million in the same period last year, largely due to the increase in restricted cash and advances related to the construction of the binary unit in San Jacinto.
Net cash from financing activities for the nine months ended September 30th, 2021 was $14.5 million compared to $1.9 million net cash used in financing activities reported in the same period in 2020. This increase was driven by higher net proceeds relating to the common share offering during the nine months ending September 30th this year, compared to lower net proceeds of debt issuance in the company in the comparative period and higher dividends. Finally, I'd like to highlight that we do intend on paying our 23rd consecutive quarterly dividend on November 26th of $0.15 per share to shareholders of record on November 15th. 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 Marc, who will elaborate on current business matters as well as on our quarter-end results. Thank you.
Thanks, Anton. With respect to just a couple of comments on the statements and the quarter results before I move on to other items. Q3, as expected, is the dry season in Peru. It's always the lowest quarter of the year for the results coming out of Peru. To give you some numbers, we did 28,000 MWh in Q3 in Peru. It's not entirely comparable to the year before, given that El Carmen didn't come back into service. It wasn't operational for the full quarter last year. 8 de Agosto was, and of note, it was up, call it 20%-25% this year over last year. The hydrology was better this year again, even though it was the dry season.
Somewhat better hydrology at 8 de Agosto , which was up and running for the whole quarter both years. Make note of that. To give you a sense, 28,000 MWh relative to Q4. Our budget is between 45,000 MWh-50,000 MWh for the three plants consolidated. Just that difference alone would be about $1 million change from this quarter to next quarter, with the costs effectively running the same. From Q3 to Q4, at least for Peru, you should see sort of somewhere around $1 million bump in revenues and hence EBITDA, if things progress as we expect coming out of Peru.
Anton didn't mention, you know, cash came down somewhat, principally because of the real, what I would call CapEx for the binary unit in the quarter was $4.1 million. Payments have already been made in several areas there. There's also some cash that got moved over to restricted cash for an LC, but that should be able to come down over time next year as we get through the progress on the binary unit. On that, everything is moving as expected. We're still in the early days, but there's been no issues whatsoever. We are at this point on schedule for a call it Q4 2022 commissioning date with call it the revenues and cash flows really starting Q1 2023. Nothing has changed on that.
Budget and timing on the binary unit stay the same. Other really sort of three other areas. The debt refi is moving as expected. We had, I think it was probably 90 days ago, we engaged an agent that's both a, call it an arranger, but also a principal. They are well on the way in that process. There was a plant visit about six weeks ago with participants in the loan. To remind people, what we're doing is not don't have the aim of increasing the total amount of debt at San Jacinto, rather just terming it longer to match the fact that we now have an 18-year contract.
We're just trying to match the debt with the new contract, which would free up a reasonable amount of free cash flow to have in our hands over the next three or four years principally. That's moving well. It would be a mix actually of some existing lenders just rolling over into the new facility with two or three new ones that have quite an interest in participating in the loan. We are now in call it the legal doc part of the process. The technical advisors for the lenders and ESG advisors for the lenders have submitted all their final reports and everything's looking good. Now it's down to sort of legal documentation.
We would expect that, call it mid-December, December 15th, let's say, is the target close date, where we sit today. That would be a big event for us, with effectively the new term starting January 1. On the acquisition side, we've been quite vocal about the fact that we're targeting acquisitions. We raised money in February with the intent of that. I remain highly confident that we will be putting that extra capital that we raised to work in the very short term. Profile of what we're looking at is combination of current production plus some expansion on site, plus the potential to grow more with other development projects. Where we are at is on two separate opportunities.
We are in between the LOI phase and the call it shareholder purchase agreement phase. We're not at the point of announcement, but we are moving much closer to that. The thinking is that based on where we sit today, both would likely happen this quarter. We continue to push that forward, which is really the key sort of initiative we're working on. That would set us up very nicely for 2022. Because if we did close, as I said, the profiles would have even some instant call it financial impact for 2022. Then the last thing I'll mention before turning it over is on the carbon front. It's still unclear exactly what may come out of the Glasgow meeting this week.
We are getting some positive signals and it may take a little bit of time to decipher or even see where the agreements end up. It's looking that it should be a net positive based on what we're hearing, which would reinforce, I guess, the strategy that we've had of ensuring that the current plants we have are on track for being verified and ready to potentially sell credits. We did announce a credit sale earlier this year, and we've done a little bit more that we haven't announced. I think we'll see in the next month here that there should be some agreement that what we would hope for would increase the number of parties that could satisfy their carbon reduction goals through buying voluntary credits.
Which are the UN credit mechanism that we're part of, which is a voluntary market. But to the extent that either companies or countries can reduce their emissions or hit emission reduction goals by buying voluntary credits, we would fall under that. That is something that we continue to ensure that we're ready for, and it seems to be moving in the right direction. With that, I will open it up for questions.
Thank you. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star one on your phone at this time. If you wish to withdraw from the queue, please press star two. We request that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold a moment while we poll for questions. Our first question today is coming from David Quezada at Raymond James. Your line is live, you may begin.
Thanks. Morning, everyone. So my first question here, just on the operations in Peru, it sounds like things are, you know, operating quite well. Would you say that you're at the point now where it's kind of hydrology equivalent, you're kind of a steady state? Or do you see any opportunities now that you've had these operations running for a while to optimize, be it on the O&M side or any other ancillary kind of investments you could make there?
Yeah, I think we're, you know, we have a little bit of maintenance planned in the next few weeks at 8 de Agosto . But, you know, we're really getting, you know, I would think 2022 is a, we don't really have any other, call it, post-COD maintenance. There's always these little things you gotta fix, but it keeps, you know, going down and down. I think we are entering a period in 2022 of just basic operations. You know, we actually have an outsourced party doing that on a contract, so I don't see the costs next year coming down. I would see opportunities for that more likely a little bit down the road, which we do see.
I don't think there's huge sort of cost savings there. Rather, you know, production should be going up as any of these teething issues are done, combined with pricing going up. Because remember that 8 de Agosto right now is receiving a lower price than its contract, just because it's below the committed energy. We will be applying from the January 1st to reduce that which we're allowed to do as part of your contract, which should get us back to or close to the PPA price, which is. It's about a 20% difference on the pricing. I would see more benefits coming from the top line, you know, in the next few years rather than the bottom line.
Okay, excellent. Thank you for that. That's helpful. Maybe one other one just on the carbon credit side of things. Any additional color you can provide just on how those voluntary credits, how the pricing has moved, if it's different from the regions you're looking at? Maybe a related question, have you ever considered or looked at, you know, some of the conservation type carbon credit investments that can be made, if there are any in Nicaragua or Peru or elsewhere? If that would be something that, since you're already kind of in the carbon credit business, that you might look at longer term.
I guess the short answer on the last part is yes, we would look at it, although I don't think that is in our sort of short term, because I think you're looking at real capital investment and you would need, I think, a little bit more visibility on the market itself. Because for us, the low-hanging fruit is there are minimal costs per plant to get them verified and validated, but it's not, you know, we're talking anywhere from $25,000-$75,000, which based on the pricing, you know, there's a very quick payback. It does take a while. It's probably a year and a half to get something done, and it is quite a rigorous process.
Our view is, you know, let's just make sure we get all of our current plants and even the ones that we're hoping to acquire, if they can be or any of the expansions, that is, I think, the best, you know, return on capital that we can have. As long as there's more to do there, I think we'll stick to that. In terms of the pricing, I would say even a year ago when we were looking at it, we had some inbounds at sort of $0.50 a ton. Then it kind of went to $0.75 and then $1. You know, we transacted higher than that, sort of in between there. We've done some at $1.50, some a little bit below that.
Those aren't fantastic prices, but those are for vintages, and that has moved just in 12 months, you know, quite a bit. There's a lot of interest and inbound still on it. You know, we've had proposals for higher numbers on a per ton basis for more, call it, the recent inventory or the go forward. Yeah, I think the momentum is for that price to head higher. This is just my personal theory, that you have for people or companies and countries to call it meet goals, you know, carbon tax of $50 a ton or $70 a ton or whatever. Even the market in Europe has traded around EUR 40 a ton.
Whereas if you can buy a quote-unquote voluntary credit at, let's say, $5 a ton or $10 a ton, I think that's gonna get opened up. Because there's too much of a distance between where we are and where those, call it, non-voluntary markets are. I think there's going to be a push to open the buyer universe up for the voluntary credits.
That's great, color. Thanks, Marc. Appreciate it. I'll turn it over.
Thank you. Our next question today is coming from Ahmad Shaath at Beacon Securities. Your line is live.
Hey, Marc. Just a quick question for me on Panama. Any updates on Panama? That's it for me.
Yeah, the everything continues to move forward. I'd say it's a little bit slower than we want. And that likely it's more of a Q1 launch. And our plan, though, would be to provide, call it, a more detailed update on that timing in conjunction with what we hope to be other sort of news on the acquisition front. Because if you recall, there were one thing I hadn't mentioned is the jurisdictions that I sort of described the profile of the acquisitions we're looking at, in terms of their operational plus and expansion plus development. But in terms of the countries, we're for sure looking in Panama, we're looking in Peru, we are looking in Colombia, we are looking in Ecuador, we're looking in Costa Rica, in Dominican Republic.
That's sort of the list of countries, and Panama is there. It's absolutely at the forefront. We're hoping to have something more there and then that'll sort of tie in the Chuspa, and then we'll provide a more, call it, fulsome update on what the plans are for Panama at that time.
That's, that's great. That's it for me. Thanks, Marc.
Thank you. Our next question today is coming from Nick Boychuk at Cormark Securities. Your line is live.
Thanks a lot, Marc. Just wondering if you can kind of walk us through the Peruvian assets a little closer here and kind of looking to reconcile the production levels from Canchayllo versus 8 de Agosto and El Carmen. Recognizing it's the dry season, it just seems like Canchayllo performed from a capacity factor standpoint, much better than 8 de Agosto and El Carmen. Any color you can give there?
That one of the three plants, it's almost. It's actually downstream from a big dam that's owned by Electroperú . They do regulate water flows such that there is more in the dry season. They kind of build up their dam in the rainy season. That one is not exactly flat, but almost flat, you know? If you think, 30,000 MWh is sort of what it's done since COD, like plus or minus. It's probably better to just model that one at 7,500 a quarter.
Okay, great. That makes sense. Then on the acquisition front, obviously, respectfully, you can't give too much detail, but anything you can comment on in terms of size, amount of capital you think it'll take up and what your plan to be for the remainder of that cash then?
Yeah. The target really is when we had the cash to do the binary unit, right? We always said that, and then when we raised the funds, we raised CAD 50 , which was net around $38 at the time, net proceeds in February. That's what we're working off of, and that's very close to sort of the equity component of what we're looking at. With thinking that, you know, we wanna execute it within our capital availability right now and I think if we put those pieces in place along with the refi, where I am hopeful that we can get back to some dividend increases at some point next year.
Everything we're doing is within our means now, and then hopefully we get some credit for it, you know, in the equity price, so that to the extent there's others that we're looking at, which we are, we would have, call it better share price slash cheaper cost of equity to pursue those things.
Understood. Okay. Thanks so good for me.
Thank you. Our next question today is coming from Naji Baydoun at iA Capital Markets. Your line is live.
Hi, good morning. Just, on Peru, I guess you're going to file to adjust the energy commitments early next year. Do you expect to get the full 15% since that's at one time?
Yeah. That's what we will apply for the full 15%. It's not as if it's your right within your contract to do that. It's not as if you're applying and hoping that you get it approved. You just need to go through the process. What the only remaining question on our mind is how fast we would get it and at what point they would adjust the price. The power, quote, unquote, power year in Peru is May 1 to April 30th. We think it would start being applied May 1 most likely.
It wouldn't be retroactive to January, but it would be retroactive to May 2022.
Yeah, that's the best assumption that we're going. The way we read it is it looks like in theory it could be retroactive to January 1, but I don't think that that's a practical assumption. I think it's just better to assume starting on May 1. I think we'll get the approval before May 1, so it's not as if it should be a retroactive thing. We apply January 1, let's say it's a 90-day process. It then starts being applied May 1.
Okay, great. Just on the refinancing, I guess it's taking a bit of time, but now that maybe you're close to getting it, or you know done, can you share any thoughts about expectations, maybe if there's gonna be any changes to the rate or it's really just about the tenure at this point?
Yeah. Good point. We do expect some improvement on the blended rate to what we're getting now. That isn't the driving factor, but I do think we're gonna see a rate improvement on a blended basis to what we have now. Right now the loan is amortizing down to 2028, but it's in two tranches, and the first tranche is big, and it's amortizing down to 2024. 2022, 2023, 2024 are the really heavy years. It's really, even though it's 2028, on a weighted basis, it's more like we're amortizing down to 2026. Five years, whereas what we're, the term sheet we're working off of is a 15-year straight line amortization.
Okay, got it. That's very helpful. Just the last question I had was around the dividend. Is the expectation, and I know maybe it's a bit too soon, that just based on the refinancing alone, you could maybe do a dividend increase, or would you rather wait and get more operating assets in the door?
I think, yeah, it just based on the refi, you know, 2022, we could. I think it even less based on, call it getting operating assets in the door, which will help for sure with that. I think it would just be ensuring that there's not gonna be any major cost overruns on the binary unit, which we'll know by I think Q2 next year. That, you know, really should not be. I'm not saying you would wait until it's in service and been commissioned, but Q2 is kind of a big quarter where that's when all the equipment would have been manufactured. Just to be clear, we have a fixed price contract on $14 million of a $25 million budget. That won't change.
It's just there'll be a confidence level, I think, if I call it, you know, by July of next year that everything's sort of marching forward as planned. And in my mind, that's sort of when there'd be the confidence. You just—because that's a project that if there was a risk of cost overruns again, which are very small, but you just wouldn't want to be increasing your dividend too far in advance of that. That to me, that's the bigger one, as to what the point would be where you say, okay, we're confident now. Even if, because you point out, even if because of the refi that from an operational basis, the payout ratio is going down. You could do it.
Yeah, I understand. You just, you know, wanna be a bit more conservative and maybe wait till the second half of next year. Just tied to your comment about, you know, pricing. I know the budget for Chuspa has gone up a bit, but have you selected a contractor? Like, do you think that there's gonna be some pressures on, you know, that project?
We did have like a month ago, we met with a whole bunch of contractors that already provided budgets years ago. They refreshed them. There actually was not a lot. Their good news is, the equipment and the people are all sitting in Panama, for instance. So things that we're looking at, and I would even include some of the growth stuff that we haven't announced yet, when you have equipment and people already in country, you're not seeing sort of the supply chain issues, right? So short answer is no, we haven't seen anything on that front.
Okay. That's great. Thanks, Marc.
Thank you. Once again, ladies and gentlemen, if you have any questions or comments, please press star one now. We have no further questions in queue at this time. Do you have any closing comments you'd like to finish with?
Nope. I think we're okay.
Thank you very much.
Thank you.
Yep.
Thank you, ladies and gentlemen. This does conclude today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.