Atlantis Resources raises £20m as it prepares for closer relationship with SIMEC

Atlantis Resources announced a proposed placing to raise up to £20m through an accelerated bookbuilding process on Monday.

The AIM-traded firm also announced that it had agreed further definitive documentation in relation to the acquisition of SIMEC Uskmouth Power, and expected to publish the admission document in relation to the proposals on Tuesday.

Following the acquisition, 220MW of capacity at the power station was proposed to be converted to use a waste-derived energy pellet.

Proceeds of the placing were to be used to contribute towards the working capital requirements of the enlarged group, to pay down some debt, to fund the costs of the FEED study for the conversion of the power station to run on the waste-derived energy pellet, for tidal project and technology development, and to fund some of the costs of the board’s proposals.

Atlantis said the power station value was supported by a “robust and value enhancing” contractual structure.

Net present value of the power station was estimated to be £123m using the current estimate of the conversion cost of £185m, and a leveraged discount rate of 13%.

A route-to-market power purchase agreement was signed with Marble, a GFG Alliance company, pursuant to which a majority of the power station's power generation was proposed to be sold following conversion.

Atlantis said the Marble PPA contained a floor price of £30.90 per MWh, escalated annually at half the rate of CPI.

A fixed-price power purchase agreement was also signed with Fuel SPV, a joint venture company incorporated by SIMEC Fuels - a GFG Alliance company - and N+P Group - a Dutch recycling group - pursuant to which the power station proposed to supply up to 15MW of electricity to the SUP fuel processing facility proposed to be constructed on a site adjacent to the power station.

Under the fixed price PPA, output would be sold at a fixed price of £130 per MWh, escalated annually based on CPI.

A fixed-price 20-year fuel supply agreement was also signed with Fuel SPV, under which all of the power station's fuel demands after conversion would be supplied by Fuel SPV.

Fuel SPV would supply energy pellets to SUP based on SUP's demand for fuel, which was estimated to be 875,000 tonnes per annum.

SUP would pay £4 per tonne for the energy pellets, subject to adjustment in certain circumstances, and such price indexed in accordance with CPI.

AECOM, the technical consultant, estimated the cost of conversion at approximately £185m, subject to a -10%/+30% estimate accuracy range and including contingency.

Subject to completion of FEED, all necessary consents being obtained, and subject to financing, the construction works in relation to conversion including commissioning could be completed within 18 months of final investment decision, Atlantis reported.

“Based on a final investment decision in mid-2019, this would allow the power station to complete commissioning and enter into commercial operations in Q4 2020,” the board explained in its statement.

“Atlantis anticipates that it will seek funding for the conversion in Q2 2019 following completion of FEED and procurement of the necessary permits.

“Approximately half of the conversion cost is expected to be met through debt funding, with the company also looking to obtain an element of grant funding from the Welsh government or European sources as well as raising some further private and/or public equity capital.”

It said it intended that SUP would contract the conversion works on an EPC basis.

“Such EPC contract would be expected to be on a fixed price, date certain, turnkey basis reflecting the market standard for power plant conversions funded through project finance.”

The consideration for the acquisition was to be satisfied entirely in Atlantis ordinary shares, resulting in SIMEC owning 49.99% of the enlarged share capital.

“A relationship agreement has been entered into between Atlantis and SIMEC to govern the relationship between the Atlantis Group and the GFG Alliance to ensure that Atlantis can act independently of the GFG Alliance following completion,” the board added.

“SIMEC will be entitled to nominate two persons to be directors of Atlantis as long as SIMEC owns in excess of 20% of the company's ordinary shares, and to nominate one person for so long as SIMEC owns in excess of 12.5% of the company's ordinary shares.

“The agreement also contains a standstill under which SIMEC agrees not to acquire 50% or more of the ordinary shares without the approval of the board, such approval not to be unreasonably withheld or delayed.”

The acquisition was intended to be the first of a number of acquisitions from the GFG Alliance that would transform Atlantis into a diversified energy company of scale, owning development and generating assets across the sustainable energy spectrum, supplementing its existing portfolio of tidal assets, the company explained.

Atlantis was, through the relationship agreement, being provided with investment rights through a right of first offer to a pipeline of renewable power assets owned or subsequently acquired by the GFG Alliance.

The SIMEC pipeline comprised a number of assets within the UK and Australia with a total gross generation capacity of 680MW.

“On admission, the company's name is proposed to be changed to SIMEC Atlantis Energy Limited.”

With effect from admission, Andrew Dagley would join the board as chief financial officer and Mark Elborne and Jay Hambro would join the board as representatives of SIMEC.

Also with effect from admission, Duncan Black, Ian Cobban and Michael Lloyd would step down from the board.