Luminus Management, LLC and LS Power (collectively “Luminus Group”), TransAlta Corporation’s (TSX: TA) (NYSE: TAC) largest shareholder, today commented on the TransAlta’s February 13th announcement that it plans to design, build and operate a 66-megawatt wind power project in southern Alberta.
Paul Segal, President of Luminus Management, commented: “Although we are pleased to see that TransAlta continues to seek out growth opportunities within its core markets, TransAlta’s approach to developing its current growth projects that include Keephills, Kent Hills and now Blue Trail continues to move the company toward significantly increased business risk. Shareholders should take issue with the fact that all of these growth projects 1) lack fixed price construction contracts, 2) that only approximately 25% of the total projects’ output has been sold forward and, 3) that all of the capital cost – and corresponding risk – is being sourced from TransAlta’s free cash flow.”
Mr. Segal added, “Contrary to TransAlta’s stated ‘low-to-moderate risk strategy’ this very aggressive approach toward growth investment creates significant risk for shareholders and confirms that TransAlta is in fact a merchant independent power producer (IPP).”
Luminus Group noted that construction costs in energy sector projects have increased by approximately 20% annually over the last two years. Luminus Group believes that TransAlta’s decision to proceed with over $1 billion of construction projects without locking in fixed price construction contracts could seriously impact shareholder value down the road – offsetting years of dividend payments.
Mr. Segal continued, “TransAlta needs to be more disciplined in its capital allocation. As previously expressed in the White Paper we developed for TransAlta shareholders, ‘An Operator’s Guide to Unlocking Value at TransAlta’, Luminus believes that TransAlta can benefit from implementing a project finance funding model to fund opportunities like these growth projects using lower cost third party capital. Implementing this model would require TransAlta to either transfer or mitigate construction, power market and other risks. This would also free up TransAlta’s free cash flow for investment in TransAlta’s underlying business through a larger share repurchase program.”
Mr. Segal concluded, “TransAlta needs to acknowledge the risks that they are taking on behalf of shareholders and to transfer or mitigate those risks.”
Luminus Group is the beneficial holder of approximately 8% of TransAlta’s shares and has put forth various shareholder proposals for inclusion in TransAlta’s Management Proxy Circular for the 2008 Annual and Special Meeting of Shareholders to be held on April 22, 2008, including a proposal that reserves Luminus Group’s right to nominate directors for election at that meeting. Luminus Group intends to announce its director nominees shortly. The record date for the Annual and Special Meeting is February 25, 2008. For more information, please visit www.ImproveTransAlta.com.
About the Luminus Group:
Luminus Management
Founded in 2002, Luminus Management is the Investment Advisor to two investment partnerships – Luminus Energy Partners Master Fund, Ltd. and Luminus Asset Partners, LP. Luminus Management focuses primarily on investing in independent power and utility securities. The investment partnerships to which Luminus Management is Investment Advisor have approximately $1.4 billion of equity under management.