Earth Heat Resources nails US$134m project financing for Copahue Project in Argentina

Earth Heat Resources (ASX: EHR) is set to turn the 30MWe Copahue Project geothermal power project in Argentina into a reality, by securing up to US$134 million in project finance for the development of the project.

The capital injection is a major vote of confidence in Earth Heat's operations and management, with the funds to be comprised of a direct investment of US$48 million by the Inter-American Development Bank.

The bank will then arrange with assistance from Earth Heat, the syndication of US$86 million, taking advantage of the significant market and investor interest for the Copahue project.

Another big plus for Earth Heat is the significant savings to the project as a result of having this relationship with Inter-American, which is well known in the area due to being one of the largest financier of projects in the region.

A mandate has now been successfully executed by Earth Heat and the bank for the raising of the funds.

Torey Marshall, managing director of Earth Heat, commented on the good news, and said, "With this mandate in place, it prominently places Earth Heat at the forefront of the Australian geothermal developers and is an enormous vote of confidence in the execution of our business strategy.

"At the moment, we believe that Copahue is the only geothermal project that has this maturity in project financing discussions in South America. Inter-American Development Bank has undertaken significant due diligence to date and found that Copahue is extremely promising."

The next financial step for Earth Heat is to close the senior debt facility, rounding out the project finance with an additional hybrid facility, and executing the physical development of the project.

Marshall added, “Earth Heat will continue to take the necessary steps to ensure its projects meet criteria set by various project lenders who generally account for 50%-75%, of total development capex. The main issue for small cap companies is their ability to fund their projects without significant shareholder wealth dilution.

"Pleasingly, Earth Heat is now well on the path to establishing independent funding sources which significantly reduce the need for equity raisings through the project development cycle."

Outcomes from the funding injection

The agreement will enable the final parts of the funding and feasibility processes to be undertaken with clear parameters. Closing the initial phase of the financing in line with previously announced plans by Earth Heat, will be subject to the completion of a Bankable Feasibility Study and the meeting of all the requirements and covenants of the senior lenders.

The project would be consistent with the Inter-American Development Bank's integrated strategy for climate change adaption and mitigation, and sustainable and renewable energy, which aims at increasing the bank's sustainable energy portfolio of 25% by the end of 2015.

About the Copahue project

The Copahue project area is located in the western part of Neuquén Province, around 300 kilometres from the provincial capital and just a few kilometres from the Chilean border.

The geothermal resource on which the project is based occurs on the North-East flank of the Copahue volcano a young, historically active stratovolcano whose summit is on the international border.

The project area has been the site of geothermal exploration and development activities since the 1970s, with work including a number of superficial and shallow exploratory surveys (geology, geochemistry, geophysics and temperature gradient drilling).

Four deep wells, reaching depths of 1,414 metres have also been drilled in the area, which has demonstrated the presence of a commercially exploitable, vapor-dominated geothermal reservoir within at least a part of the project area.

During 2011 Earth Heat has increased the resources by 150%, completed an EIA, a pre-Feasibility Study and most recently signed Letters of Intent for offtake of the power to be produced well in excess of stage 1 and 2 development.

Originally published at: http://www.proactiveinvestors.com.au/companies/news/22571/earth-heat-resources-nails-us134m-project-financing-for-copahue-project-in-argentina-22571.html