MPX Integrated Systems

MPX (Bovespa: MPXE3; GDR I: MPXEY), is an EBX Group company that invests in integrated systems including the exploration and commercialization of natural resources, logistics, as well as the generation and commercialization of electric energy from explored resources or complementary sources. In addition, MPX also invests in power generation from renewable sources like wind and solar. In the description of MPX’s activities, the assets have been divided so as to facilitate the understanding of the Company’s integrated systems.

MPX integrates natural resources for power generation in four major systems, as indicated below:
 

Projects with PPAs* secured

Pecém I TPP (Energia Pecém)
Pecém II TPP (MPX Pecém II)
Itaqui TPP (MPX Itaqui)
Serra do Navio TPP

*Power Purchase Agreement

Natural Resources

Seival Mine
MPX Colombia
Exploratoy Blocks

 

Growth Opportunities

Porto do Açu TPP
Castilla TPP
MPX Sul TPP
Parnaiba TPP
Solar Energy
Wind Energy
 

Projects with PPA secured

Pecém I TPP (Energia Pecém)

Pecém I TPP (Energia Pecém) will be a 720 MW coal-fired plant, a 50/50 partnership between MPX and Energias do Brasil. The plant sold 615 average MW in the A-5 auction held in October 2007, thus ensuring fixed revenues for a 15-year period, starting in 2012, of R$ 476,6 million (as of September 2009) escalated by the IPCA inflation index (Amplified Consumer Prices Index – IBGE ). The PPA (Power Purchase Agreement) foresees a full pass-through of fuel costs to energy prices, including the impact of changes in the exchange rate.

Construction works on Energia Pecém, wich began in July 2008,  are evolving according to schedule. During 3Q09, the setting of land markers for the plant’s key equipment was finalized. In the same period, the mechanical assembly of the boiler’s structure was started, as well as the installation of water pipes. Furthermore, the electrical installation building is well-advanced.According to implementation control parameters, the EPC progress reached 39.4% at the end of 3Q09.

The first turbine (360 MW) is expected to startup in July 2011 and the second turbine (360 MW) in October of the same year, both in advance of the commitment for energy delivery by January 2012. The energy
generated during 2011 can be sold on the spot market, generating additional revenues for the project.

Energia Pecém has entered into an EPC (Engineering, Procurement and Construction) contract with Mabe Construção e Administração de Projetos Ltda., a partnership between the companies Tecnimont and EFACEC. The turbines will be supplied by Siemens and the boilers by Doosan Babcock. The EPC contract contains a number of incentives for early startup and various performance guarantees such as Delay Damages Performance Liquidated Damages, Performance Bond Advance Payment Bond and Parent Company Guarantee.

MPX has signed long-term financing contracts with the Inter-American Development Bank (IDB) and the Banco Nacional de Desenvolvimento Econômico e Social (BNDES) for the implementation of Energia Pecém. Energia Pecém’s financing package was approved after a long and strict due diligence process, coordinated by specialized consultants appointed by creditors. The due diligence has covered in details all technical, environmental, social and financial aspects. Citibank acted as advisor in the structuring of the financing for Energia Pecém with BNDES and IDB.

The financing contract with BNDES foresees a loan in the amount of R$ 1.4 billion (in nominal R$, excluding interest during the construction), with a 17-year total tenure, being 14 years of amortization, and a grace period for payment of interest and principal until July of 2012. The cost of debt is TJLP + 2.77% p.a. During construction, interest will be capitalized.

On October 14, 2009, the BNDES disbursed R$ 700 million long-term financing for Pecém I. Funds disbursed
were used to pay off BRL-denominated bridge loans and shall also cover estimated investment requirements for additional 3 months. Subsequent disbursements will be done on a pari passu basis with equity injections.

On October 30, 2009, the IDB released the first tranche of Pecém I’s long term financing in the amount of US$260 million. The amount disbursed consists of US$117 million of the direct loan (A Loan) and US$143 million of the indirect loan (B loan). This first tranche should cover foreign currency denominated capex incurred so far plus approximately 75% of the disbursements foreseen in the next 6 months. Subsequent disbursements will be done on a pari passu basis with equity injections. The funds released by IDB allowed the pay-off of USD-denominated bridge loans.

IDB’s long term financing package foresees an A loan totaling US$ 147 million and a B loan totaling US$ 180 million. The A Loan has 17-year tenure and a grace period for principal repayments until July 2012. The B Loan has 13-year tenure and a grace period for principal repayments until July 2012. Initial rates for the A and B Loans are Libor + 350 bps and Libor + 300 bps, respectively, with step ups.

The USD-denominated long term loan, in turn, has already been hedged against FX and Libor fluctuations. The spot FX-rate obtained was 1.81 R$/US$. 

Considering the total required capex and financing packages from IDB and BNDES, the project will have acapital structure of approximately 75% debt/25% equity.

Energia Pecém forms part of the Federal Government’s Accelerated Growth Program (PAC). The plant has a 75% income tax discount for the first ten years of operation because is located in the
ADENE/NE region. Fiscal benefits applicable to the project also include exemption from PIS/Cofins (9.25%) on the costs of the EPC contract and the deferral of 59% of ICMS on coal imports.

Pecém II TPP (MPX Pecém II)

Pecém II TPP (MPX Pecém II), of 360 MW, a project fully-owned by MPX, secured a contract for 276 average MW in the A-5 energy auction held on September 30, 2008. The PPA beginning in January, 2013, has a 15-year term and ensures fixed annual revenues of R$226,2 million (as of September 2009), indexed by the IPCA. In addition the PPA foresees full pass-through of fuel costs to the energy price, including the impact of changes in the exchange rate. The plant will also use Pecém Port to receive coal. Because the plant is due to startup in June 2012 and the commitment for energy delivery begins in January 2013, the energy produced during 2012 can be sold on the spot market, generating additional revenues for the project.

Construction works on MPX Pecém II, wich began in November 2008, are evolving according to schedule. During 3Q09, the setting of land markers was concluded. According to implementation control parameters, the EPC progress reached 23.6% at the end of 3Q09. 

MPX Pecém II has entered into an EPC (Engineering, Procurement and Construction) contract with Mabe Construção e Administração de Projetos Ltda., a partnership between the companies Tecnimont and EFACEC. The turbines will be supplied by Siemens and the boilers by Doosan Babcock. The EPC contract contains a number of incentives for early startup and various performance guarantees such as Delay Damages Performance Liquidated Damages, Performance Bond Advance Payment Bond and Parent Company Guarantee. In the negotiation of the EPC contract with Mabe, MPX secured an additional capacity of 5 MW for MPX Pecém II, above the figure used in the energy auction valuation model. The increase in capacity is subject to approval by ANEEL.

The FX hedging for the USD and Euro-denominated portion of the investment for the construction of the Porto do Pecém II TPP was concluded soon after the energy auction, at a spot exchange rate of 1.92 R$/US$.

In January 2009, MPX completed the syndication of a bridge loan amounting to R$ 305 million, coordinated by Citibank and with the participation of Bradesco, Itaú, Santander and Votorantim, in order to finance part of the implementation of MPX Pecém II. The disbursement of the bridge loan has already been concluded. With a term of up to 15 months, the bridge loan will be settled with the funds from the long term financing contract, to be entered into with BNDES. MPX Pecém II project was declared eligible for long term financing from BNDES, considering a debt/equity ratio of 30%/70% and assuming direct financing – indexed to the TJLP – of approximately 67% of the total debt and onlending – indexed to the IPCA – of the remaining 33%.

In May, MPX secured a long term credit line of up to R$ 323 million from Banco Itaú BBA to finance MPX Pecém II project. Itaú BBA will be the Lead Arranger of part of the long term financing package through loan onlending agreements, and will also serve as advisor on the contracting of the total long term financing package.

MPX II form part of the Federal Government’s Accelerated Growth Program (PAC). The plant has a 75% income tax discount for the first ten years of operation because islocated in the ADENE/NE region. Fiscal benefits applicable to the project also include exemption from PIS/Cofins (9.25%) on the costs of the EPC contract and the deferral of 59% of ICMS on coal imports.

Itaqui TPP (MPX Itaqui)

Itaqui TPP (MPX Itaqui), a project fully owned by MPX, will be a 360 MW coal-fired plant. The plan sold 315 average MW in the A-5 energy auction held in October 2007, thus ensuring annual fixed revenues, for a 15-year period starting in January 2012, of R$ 252,0 million (as of September 2009), escalated by the IPCA inflation index. The PPA foresees full pass-through of fuel costs to energy prices, including the impact of changes in the exchange rate. As the plant should startup ahead of the commitment for energy delivery, the energy produced during 2011 can be sold on the spot market, generating additional revenues for the project.The plant will use the Itaqui Port, already in operation, to receive coal.

Works at Itaqui are evolving according to plan. During 3Q09, the setting of landmarks was concluded and works for the plants foundation proceeded. Also, some components of the plant’s key-equipment were delivered and installation of water pipes began.According to implementation control parameters, the EPC progress reached 38.8% at the end of 3Q09.

MPX Itaqui has an EPC (Engineering, Procurement and Construction) contract signed with Mabe Construção e Administração de Projetos Ltda., a partnership between the companies Maire Tecnimont and EFACEC. Turbines will be supplied by Siemens and boilers by Doosan Babcock. The EPC contract relies on incentive mechanisms for early startup and various performance guarantees such as Delay Damages, Performance Liquidated Damages, Performance Bond, Advance Payment Bond and Parent Company Guarantee.

- Financing:

BNDES’ direct loan will amount to a total of R$ 797 million and Bradesco and Votorantim’s onlending loans will total R$ 241 million (in nominal BRL, excluding interest during  construction). Loans will have a 17-year tenure, with a 14-year amortization period, and a grace period for interest and principal until July 2012.During construction, interest will be capitalized. The first tranche released by BNDES and onlenders amounted to R$ 444 million (R$ 314 million from BNDES direct + R$ 130 million from onlenders).

In addition to BNDES’ financing package, Itaqui will receive a R$ 203 million (nominal BRLs) loan from BNBFNE, of which R$ 99 million were disbursed. BNB’s loan has a 17-year tenure, with a 14-year amortization period, and a grace period for principal until July 2012.

Considering the total required capex and financing packages from BNDES, BNB, Bradesco and Votorantim, the project will have a capital structure of approximately 75% debt/25% equity.

Exchange rate exposure has been hedged through Non Deliverable Forward (NDF) contracts signed in October 2007, consisting in foward rate agreements with no margin calls. Exchange rate risk was mitigated through FRA LIBOR Swaps, also consisting in forward rate agreements with no margin calls.

MPX Itaqui is included in the Federal Government’s Accelerated Growth Program (PAC). The plant will have a 75% income tax discount for the first ten years of operation because it is located in the ADENE/NE region. Fiscal benefits applicable to the project also include exemption from PIS/Cofins (9.25%) on the costs of the EPC contract and the deferral of 100% of ICMS on coal imports.

 

Serra do Navio TPP

Serra do Navio TPP, a 51/49 partnership between MPX and Eletronorte, is a 23 MW capacity diesel plant wich is already operating in Amapá State. The plant received an authorization from ANEEL to act as an independent energy producer – IEP.

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Natural Resources

Seival Mine

The Seival Mine is the result of a 70/30 partnership between MPX and Copelmi. It has proven reserves of 152 million tons of coal, which is more than sufficient to supply a 600 MW thermal plant for 20 years. The project has already been granted an operational license.

Coal from the Seival Mine will be used to supply the MPX Sul TPP project and can also be sold in the region. A 600 MW plant would demand approximately 3 million tons of coal per year.

 

 

MPX Colombia (Mining Rights)

MPX has an option for the purchase of mining rights in a traditional thermal coal producer region in Colombia – La Guajira, comprising an area of approximately 50 thousand hectares.

The coal from these regions is recognized for its outstanding quality, with calorific value normally higher than 6,000 kcal/kg (10,800 BTU/lb) and low percentages of ashes and sulfur. Alongside the exploration campaign, alternative logistics are being analyzed for moving the coal from the potential mines to Colombian ports, and from those to the Company plants.

On September 15, 2009, MPX obtained the first CIM-compliant Mineral Resource Technical Report for its concession areas in the La Guajira district in Colômbia. Indicated and inferred mineral coal resources exceed 110 million tons, with high potential for open-pit mining. The resource estimate was based on a drilling campaign that covered 320 hectars (ha).

The drilling campaign proceeded in the region of La Guajira. Efforts are focused on continuing drilling in the areas covered in the report with the aim to increase the volume of resources, and also in expanding to new areas.Results so far have been quite promising. Ongoing geological survey and drilling efforts should allow MPX to release a second report with new resource estimates as well as to reclassify part of the original indicated resources into reserves in 1Q10.

Parallel to the exploration campaign, alternative logistic options are being analysed as outlets for future production.

The drilling campaign carried out until Feb/2010, with 195 boreholes reporting coal seams out of a total of 266 that have been completed and a total of 90,000 meters drilled, indicates potential resources of 1.74 billion tons of coal. The positive results achieved so far and the acquisition of a strategic site for the construction of a private port set the basis for the development of an integrated coal mining system with an output capacity of 20 million tons per year (Mty).

The system will encompass 3 open-cast mines, in Cañaverales, Papayal and San Benito, and underground mining in San Juan. Production shall begin in 2012 and, based on current resource estimates, it might reach 15 Mty in 2021. Moreover, the Business Plan considers that with the expansion of the drilling campaign to new areas, production shall reach 20 Mty.

MPX Colombia’s port (“MPX Port”), to be built in an area of 521 hectares, located at approximately 150 km from the mines, shall start operations in the end of 2013, thus covering coal production volumes expected from 2014 on. Until then, MPX Colombia should be able to supply its power plants in Brazil and Chile by exporting its production through an existing port in Santa Marta or Ciénaga, for which negotiations are already underway. Planned logistics for mine-to-port transportation foresee two stages. The first one, in which coal will be trucked coal from the mines to the MPX Port, will accommodate up to 7 Mty in 2015. From 2016 on, mine-to-port transportation shall be carried out through a private railway, allowing maximum output capacity to reach 20 Mty.

The aforementioned timeline already accounts for the expected time needed for environmental licensing, granting of concessions, rights of way and expropriations, if necessary.

To this date, 4 areas have been covered in the drilling campaign. MPX Colombia has identified a total of 1.74 billion tons of potential coal resources in such areas. MPX concessions total 66,225 ha, along 25 km of the coal bearing Cerrejon Formation, according to the report by John T. Boyd Company. In Mar/2010, John T. Boyd certified 144 million tons of reserves and resources with potential for open-cast mining. Additionally, MPX Colombia’s geologists have identified 1.6 billion tons of potencial coal resources for underground mining in the San Juan area.

The Business Plan as developed, uniting world-class mining assets to efficient logistics solutions, ensures a unique regional integration for MPX Colombia’s system, encompassing the Colombian, Brazilian and Chilean markets. The system, as conceived, secures export capacity to MPX Colombia and allows it to capture gains of scale, with resulting increased returns. The full version of the Business Plan can be downloaded from MPX’s website.

 

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Exploratory Blocks

The Brazilian Petroleum, Natural Gas and Biofuels Agency (“ANP”) approved the transfer of 70% of the rights and obligations related to seven exploratory onshore blocks in the Parnaíba Basin, in the state of Maranhão (“Blocks”), held by OGX Petróleo e Gás S.A. (“OGX”) to OGX Maranhão Petróleo e Gás Ltda. (“OGX Maranhão”), a special purpose entity in which MPX holds 33.3% and OGX  66.7% of the capital, as foreseen in the Memorandum of Understanding (“MoU”) signed between the parties in September 2009.

 As per the Notice to the Market released on September 24, 2009, OGX acquired the participation interest in the Blocks from Petra Energia Ltda. (“Petra”), which retains a 30% working interest in the Blocks. At that time, MPX and OGX signed a MoU that formalized the intention of transferring the acquired participation to OGX Maranhão upon approval by the ANP. This MoU also formalized the intention to execute a gas supply agreement for the thermoelectric plants to be developed by MPX in association with Petra in the region.

 MPX also announces that it has hired from Queiroz Galvão an onshore rig, QG-1, which will be responsible for drilling activities expected to begin in May. The Blocks are located in the Parnaíba Basin, considered a new exploratory frontier, and extend over an area of 21,471 km² which presents relevant potential for gas production, confirmed by a well drilled in 1987 where evidence of hydrocarbons was found.
 

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Growth Opportunities

MPX has a projects portfolio that strategically places the company in the search of the best growth opportunities in light of the Brazilian energy scenario.

However, the development of the projects described below is subject to market conditions, always considering the maintenance of the company’s capital discipline. MPX reiterates the commitment with its shareholders, to seek returns that are suitable to the market conditions in effect. 

Porto do Açu TPP

The MPX Açu project will be installed in the Açu Super Port and is divided in two phases:

Phase I
MPX Açu Phase I has an Installation License, issued by Instituto Estadual do Meio Ambiente (INEA) for 2,100 MW, fueled by imported mineral coal.

Phase II
MPX Açu Phase II will have a 3,300 MW thermal gas plant, as well as a regasification facility, both located in the Açu industrial complex.

Castilla TPP

Castilla TPP will be a coal-fired thermal plant to be installed near the city of Copiapó, Chile.

The licensing process for a pulverized coal plant is on course. The plant should be built with 350 MW modules, totaling up to 2,100 MW. This is equivalent to approximately 20% of the current installed capacity of Chile. The licensing of the Castilla TPP will give MPX an excellent growth platform in Chile over the next 15 years.

The project will make a relevant contribution to a more secure energy supply for the Chilean system.

MPX Sul

In November 2009, the "Instituto Brasileiro do Meio Ambiente e dos Recursos Naturais Renováveis" (IBAMA) granted the Preliminary License (LP) for the MPX Sul TPP project. The LP attests to the environmental feasibility of the project, which foresees the development of a 600 MW coal-fired plant in Candiota, State of Rio Grande do Sul.

The Seival mine, in which MPX holds a 70% stake, will supply coal to MPX Sul.

 

Solar Energy

MPX has in its portfolio a partnership to set up a pilot plant, which will in its first phase be a 1 MW solar powered plant located in the State of Ceará. The company signed a MoU with Baoding Tianwei Yingli New Energy Resources Co. Ltd, to develop new projects related to solar power.

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Wind Energy

MPX has in its portfolio the Paracuru project, wich has a 32 MW installed capacity and a load factor of 40%. Paracuru is located in the State of Ceará.

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Last Update on November 17, 2009