Sprott Power Invests Big to Add to its Canadian Wind Power Portfolio

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Canada’s Sprott Power Corp. is looking to add significantly to its renewable energy investment portfolio, offering to buy Shear Wind Inc.’s outstanding shares for C$33 million in cash (C$0.22 per share), a roughly 20% premium to their 20-day volume-weighted trading price, and the assumption of some $51 million in debt. Shear Wind owns shares in two producing wind power farms in Nova Scotia with total generating capacity of 63.7 MW, including the largest in the province, the 62.1-MW Glen Dhu wind farm.

Along with interests in the two wind farms, Sprott Power’s bid includes strategic renewable energy project development partnerships with Wind Canada Investments and Genera Avante Holdings Canada Inc. (GAHC), both of which are subsidiaries of La Coruna, Spain’s Genera Avante S.L. The strategic partnership aims to develop an additional 860 MW of renewable power projects with Nova Scotia Power Inc. (NSPI) power purchase agreements (PPAs).

“The acquisition will increase the assets of Sprott Power from a portfolio including 80 MW currently operating or under construction to 144 MW operating under management when the expected mid October closing occurs,” stated Sprott Power president and CEO Jeff Jenner in a press release. “Shear Wind’s development pipeline is also attractive, given its size and location throughout Canada. We look forward to working together with Genera Avante, whose knowledge and expertise from their other projects around the world will make them valuable partners.”

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Sprott Powers’ Growing Canadian Wind Power Portfolio

Shear Wind owns a 51% share in Glen Dhu Wind Energy Limited Partnership, which operates the max-rated 62.1-MW Glen Dhu wind farm. The clean, renewable electricity it’s been producing since last year is purchased by NSPI under the terms of a 20-year PPA. Shear Wind also owns 100% of in Fitzpatrick Mountain Wind Energy Inc., which operates the 1.6-MW Fitzpatrick Mountain wind farm, which has been producing clean, renewable electrical power per the terms of a 15-year PPA with NSPI that began in 2007.

Sprott Power and GAHC have entered into working agreements that will lead to the formation of an operating joint venture for the operating wind farms upon completion of the Shear Wind acquisition. GAHC owns the other 49% of the Glen Dhu wind farm. Coincidentally, Sprott Power and Wind Canada Investments will establish a 50/50 joint venture partnership to develop the prospective 860 MW of renewable energy projects.

Shear Wind owns 100% of the 860-MW renewable energy project portfolio included as part of Sprott Power’s bid. It’s comprised of prospective wind power projects in Alberta, New Brunswick, Nova Scotia and Saskatchewan. Upon completion of the acquisition, the prospective portfolio assets and a current loan payable to Wind Canada Investments is to be transferred into the new 50/50 Sprott Power-Wind Canada Investments development joint venture.

GAHC and Wind Canada are to make a payment of roughly C$1.8 million to Sprott Power upon completion of the acquisition to boost the former’s share in the Glen Dhu wind farm 51% and to purchase a 50% share of the Fitzpatrick Mountain wind farm, which would reduce Sprott Power’s equity stake to 50%.

Sprott Power is turning to a syndicate of Canadian securities underwriters to partially finance the Shear Wind acquisition. On a “bought deal” basis, the underwriting syndicate is led by Canaccord Genuity Corp. and includes TD Securities Inc., National Bank Financial Inc., NCP Northland Capital Partners Inc., Stifel Nicolaus Weisel, and Macquarie Capital Markets Canada Ltd.

As per the terms of the agreement, Sprott will issue and purchase a C$30 million aggregate principal amount of extendible convertible unsecured subordinated debentures. That could be increased by as much as C$4.5 million at the underwriters’ option at any time up to 30 days following closing the offering’s closing.

With a 6.75% coupon payable semi-annually in arrears, the debentures will have an initial maturity date of October 15, 2012 that is extendable at Sprott Power’s option to December 31, 2012 and will automatically be extended to December 31, 2017, their final maturity date upon completion of the acquisition. Each $1,000 principal amount of debentures will be convertible at the option of the owner into approximately 769.23 common shares of Sprott Power at any time following the acquisition, a conversion price of $1.30 per share.

Canada’s wind power capacity has been growing at double and triple-digit rates for more than a decade now. As of year-end 2011, total wind power production capacity in Canada amounted to 5,265-MW, a 31.4% year-over-year increase, according to Wind Power.

Formed in 2005, Sprott Power’s wind power portfolio already includes the Amherst wind farm in Nova Scotia. Located within a two-hour drive from the Glen Dhu and Fitzpatrick Mountain wind farms, it should enable management to realize greater operational efficiencies and cost savings, as well as increasing its wind power base capacity, according to the company. The Shear Wind wind farms’ performance history leads Sprott Power management to declare that the acquisition will add to its expected free cash flow and distributable cash per share.

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