Contact coy about rights offer to help fund Te Mihi station

David Baldwin. Photo / Greg Bowker

Contact Energy plans a rights offer to help fund a $623 million geothermal power station near Taupo.

The company yesterday announced its after-tax earnings were flat at $78.8 million for the six months ended December 31.

Contact yesterday signed an engineering procurement and construction contract for the 166 megawatt Te Mihi station in the central North Island.

The rights offer to help fund it would be in the "near term".

Chief executive David Baldwin was coy on details.

"We haven't come into landing on the size of that issue. It's fair to say it's going to be reflective of what is an appropriate capital structure given the size of the additional capital spending.

"We haven't come to a position. We will in a wee while."

The company, which is 52 per cent owned by Australia's Origin Energy, could also raise debt, perhaps in the United States.

Fitch has affirmed Contact's at BBB/outlook stable.

"Contact's commitment to additional generation capex will not materially weaken its credit profile, particularly given Origin's commitment to the proposed equity rights issue," said Sajal Kishore, director with the Fitch's Asia-Pacific Energy and Utilities team.

"Fitch expects this plant to deliver low-cost generation and provide a more efficient use of existing geothermal resources," Kishore said.

No change to rating guidelines is proposed.

Contact will build the Te Mihi station near the 52-year-old Wairakei plant and decommission parts of the older site when the project is completed about mid-2013.

Baldwin said parts of the Wairakei plant were expensive to maintain.

The company is developing geothermal plants amid concerns hydro and wind-powered generation is too reliant on changeable weather.

"Geothermal energy is New Zealand's most strategically important energy source," Baldwin said. "It has a major advantage over other renewable energy sources because it doesn't depend on the weather."

The Te Mihi group comprises McConnell Dowell Constructors, SNC-Lavalin Constructors and PB New Zealand. The company also has approval to build the Tauhara-2 station near Taupo and is exploring the Taheke field east of Rotorua..

Contact's mass market retail margins fell from 7 per cent in the six months to December 2009 to 5 per cent in the latest half year.

Emphasis on the generation side of the business was "not at the expense" of the retail side which was affected by record rates of customer switching.

The company announced an interim dividend of 11c a share, payable on March 31.

Contact Energy shares closed down 8c yesterday at $6.11.