Transalta posts second-quarter loss
TransAltaCorp. continues to view Western Canada as a prime location for continued growth, as global demand for energy supports resources development and the need for power plants to serve the industry.
TransAlta, which posted a $22-million loss in comparable net second-quarter earnings Tuesday, has its eyes on supplying energy-hungry liquefied natural gas plants proposed for B.C. and oil and gas projects targeting Asian demand for energy.
“The biggest challenge (for the industry) is to attract customers with longer-term contracts to support that growth in infrastructure,” chief executive Dawn Farrell said during a conference call.
Alberta continues to outperform other western economies and is expected to have a corresponding increase in power demand, she said, cautioning prices likely will soften in late 2013 with the return of TransAlta’s Sundance 1 and 2 power plant units.
TransAlta shares have fallen 25 per cent this year, partly on fears about its dividend, as electricity prices have weakened and after an Alberta arbitration panel ruled the company must rebuild the Sundance Units 1 and 2. Previously TransAlta decided to decommission the units due to problems with the boiler tubes that forced a shutdown in late 2010.
The power producer said it expects to have its natural gasfired Sundance 7 unit online by the end of 2016 or early 2017.
“There’s a clear need for new generation in Alberta in the second half of this decade — the key for us is to time that project well,” she said.
The company currently plans to have the 700-megawatt plant on line by late 2016 or early 2017, based on deals being negotiated with customers wanting to hedge directly from the plant, Farrell said.
“When we build Sundance 7, it’s much more related to closing deals with key customers than it is to what is going on in the spot market.”
TransAlta said it would be maintaining its dividend payments on the strength of cash flow and partnerships on projects, despite posting a second-quarter loss and facing continued low power pricing across its major markets.
The Calgary-based corporation, Canada’s largest public power generator, posted a $22-million comparable loss, or 10 cents per share, in second-quarter earnings Tuesday, compared to a $65 million profit, or five cents per share, a year earlier.
Including non-cash items, TransAlta reported a net loss of $797 million for the quarter, or $3.51 per share.
Results were in line with the company’s guidance last week, with the near-$800million loss representing a non-cash accounting and tax issue related to Centralia and the Sundance units, noted Juan Plessis, analyst with Canaccord Genuity. “What I took away from the conference call was a reaffirmation of their commitment to the dividend,” he said.
“Cutting the dividend to grow their business would be lower down on their list, and they have many tools in their tool box to use before that happens.”
TransAlta maintained its outlook for full-year funds from operations at the low end of a range of $800 million to $900 million.
The company could also look at other options before cutting the dividend, Farrell said.
“We think it would be pretty easy to attract a partner to projects, so we’d look at that,” Farrell told analysts. “We also believe that we have a very strong reputation in the capital markets so we would look at that option.”
Farrell said the company was looking at a range of potential partners, including other power producers, pension funds, and customers interested in partnering in a project with off-take agreements.
Plessis questioned the rational behind TransAlta expecting its Sundance 7 plant to be running by late 2016, noting the Alberta market will have the 760-megawatts from the previously discounted Sundance units through 2017 and 2018.
Revenue during the quarter fell 21 per cent to $407 million.
The company said it continues to target full-year funds from operations at the low end of its earlier forecast of $800 million to $900 million.
Shares of TransAlta, which has a market value of $3.54 billion, closed up nine cents to $15.69 on the Toronto Stock Exchange Tuesday.