Thread by @MoneyMax101

On Thursday (Jun 17, 2021) Sagicor announced a new multi-billion dollar deal, which saw them taking a major stake in an LNG power plant in Jamaica?

It’s the largest corporate financing deal in Jamaica's history, so you know it’s huge

Why would they do that? 🧵 👇

In this thread I'll discuss

• What makes this special
• What’s LNG? Is it new?
• Who’s Jamalco & what do they do?
• Who’s New Fortress (the LNG company)?

You can also read the full thing as an article here. It's long. If anything bookmark for later

moneymax101.com/20210620/sagic…

So what did Sagicor Announce? (just in case you missed it)

• They’re investing US$100m (J$15 Billion)
• They’ll get a stake in an LNG power plant that powers a bauxite refinery in Clarendon (Jamalco)
• Their US$100m is 35% of the US$285-million (J$42-billion) financing deal

• This will be the largest corporate financing deal in Jamaica's history, according to the release

Why would Sagicor want a stake in this business?

In short,
• They would get a stake in a power plant and would benefit from its growth

• The plant powers a bauxite refinery and also sells energy to JPS
• They’d benefit from the growth in the company in years to come
• Their end game would be to benefit from their share in the profits, dividends and/or possibly sell that stake at a higher price later on

Tell me more about LNG and the plant

To talk about that we need to talk about energy & how we get power

These are the two categories
• renewable &
• non-renewable/fossil fuels

Oil, gas & coal are the ones that we’re using the most... but also the worst in terms of emissions

Look at this table below showing WORLD energy consumption

Oil and coal are the biggest sources and they’re also among the worst for the environment

• On top of that, the world population is growing 👨‍👩‍👦 , with energy demand expected to double by 2050
• We will need more energy
• Natural gas is plentiful and is the cleanest burning fossil fuel (see chart above about fossil fuels)

Meaning, if you look at the chart below about Jamaica’s energy, you will see that up to 2018 we were getting our energy mainly from oil… and a teeny bit from wind, solar or natural gas

(the LNG portion has increased significantly since New Fortress started these projects)

• LNG has low prices and over supply
• The economics of LNG relative to oil and coal have improved markedly over the past decade.

In short the energy that we’re using now IS NOT the best for us and the environment 🌎 🏭 🩺

According to the World Health Organization, air pollution accounts for an estimated 4.2 million deaths a year (greatest death toll in Asia) 🇨🇳

A switch to gas can significantly reduce air pollution

So why LNG? How is it made?
(without getting too technical)

Even though the ultimate goal would be to cut back on fossil fuels and use renewables, LNG is the cleanest fossil fuel
• It’s a colourless and odourless liquid fuel
• LNG is made by cooling natural gas to -162°C 🥶

• The cooling process shrinks the volume of the gas 600 times, making it easier and safer to store and ship 🚚
• In its liquid state, LNG will not ignite
• When LNG reaches its destination, it is turned back into a gas at regasification plants

It is then piped to homes, businesses and industries where it is burnt for heat or to generate electricity 🔌

LNG is now also emerging as a cost-competitive and cleaner transport fuel, especially for shipping and heavy-duty road transport

Watch this if you want to learn some more

Want to know how is LNG used? I have a whole section on that in the blog link at the end. It is used in many business sectors within the industrial sector, road transport and marine

It is typically 10-25% cheaper than diesel, with strong environmental benefits that improve air quality in cities

Projections to 2040 show that gas and renewables together make up 74% of total energy growth.

Is LNG new? Why do we need It & what is LNG anyways?

• LNG isn’t new. What is new, is the drive to take care of the world 🌎

• Countries are now interested in cutting carbon emissions (a part of it is meeting the goals of the Paris agreement) ... cue greta thunberg… 💨 🏭

• To do that however requires cleaner energy for all sectors… especially the most intensive

• A decade ago, only 23 countries had access to LNG. Costly import terminals took years to build & inflexible supply contracts complicated the widespread adoption—despite the benefits

• Concerns about the geopolitical risks of LNG dependence also stunted demand growth from existing importers, even when few other supply options were available

However, in 2019, the number of LNG importing countries grew to 43

Plus there is now more competition and we’re getting better at the development of floating storage and regasification unit (FSRU) technology

LNG has a key role to play in a decarbonising world

Ok sounds good. Tell me about LNG in the region then

5 years ago in Oct 2016 history was made when Natural gas was introduced to Jamaica’s energy mix at the Bogue Power Plant in Montego Bay

• The 120-megawatt JPS Bogue power plant was converted from diesel to natural gas

• Then in Jul 2019 an Old Harbour facility was commissioned, to supply the JPS 190-megawatt Old Harbour plant and a 150-megawatt plant in Jamalco

• And the third project is the Jamalco co-generation plant commissioned in Q1 2020 - a 150-megawatt plant

As a result a number of places are now using LNG to power their business including
• the University of the West Indies (UWI)
• Red Stripe
• Caribbean Products, Appleton, IGL Limited, CB Group, Clarendon Distillers, Wisynco and Seprod
• there are also plans to supply the JUTC

LISTEN TO THIS: The gov’t says they want 50% of Jamaica's electricity to come from LNG and renewables by 2030! 🙌 👏 🍾

Who is New Fortress, the company selling the power plant?

Firstly they are a Nasdaq (US stock market) company, founded by a 🇺🇸 multi-billionaire. This man co-owns a US 🏀 team and was previously the head of Lehman Brothers and Blackrock Financial… meaning he has the means…

But even more important… he saw an opportunity in the Caribbean and other places… to make money by fixing inefficiencies

Same problem Digicel saw in telecoms, he saw in energy

We need cheaper, cleaner energy, buy it elsewhere, put it on a ship and sell it to 🇯🇲. Boom! Bingo!

The Company currently sources LNG from a combination of its own facility in Miami, Florida and they also purchase on the open market

The Company has liquefaction, regasification and power generation operations in the United States and Jamaica

New Fortress supplies gas mainly to power suppliers such as Jamaica Public Service Company but also to industrial players such as Red Stripe Jamaica and the others mentioned above

The company supplies LNG but also builds infrastructure to pipe gas to its customers

Jamalco, which was commissioned in early 2020, was its first foray into power generation without a partner.

New Fortress Energy first started Jamaica's transition to liquefied natural gas (LNG) in 2015 with the build out of its state-of-the-art LNG terminal in Montego Bay, which converted JPS's 145-megawatt Bogue power plant from diesel to natural gas

PREE THIS: New Fortress is a Nasdaq 🇺🇸 listed company making majority of its sales in JAMAICA 🇯🇲 ! Mind blowing… when I tell you that there is money 💰 to be made here...

So in essence, Sagicor is betting on the future, getting in early, to take a piece of the pie... as it’s almost a no-brainer that we will need cleaner, cheaper energy

Who will the power plant sell the energy to? What’s Jamalco?

Jamalco is a joint venture with a focus on bauxite mining and alumina production. It’s a venture where the govt owns 45% and the rest is held by others (specifically the Noble Group a Hong Kong based company)

Jamalco mines bauxite and refines it into alumina before it is exported from its port at Rocky Point, Clarendon

Sounds energy intensive right? I think so too.

The Gleaner says Jamaica’s bauxite and alumina sector is the country’s third largest earner of foreign exchange, behind tourism and travel, and remittances.

So you know this sector bringing in big bucks.

Oh and in the bauxite sector JAMALCO is the largest alumina refinery

Jamalco’s bauxite mines are located in South Manchester 🇯🇲, while the refinery and the port from which alumina is shipped are both located in Clarendon

Imagine powering the bauxite plant with LNG and how significant that would be for the emissions!

I guess Sagicor is thinking along those lines as well… invest in the supply.. demand is guaranteed

Oh MAJOR side note

The government plans to list Jamalco on the JSE. That would definitely be a MAJOR listing 💹 📊

jis.gov.jm/clarendon-alum…

So let’s talk numbers. How is New Fortress doing?

• 2020 was was their best year in terms of revenue, but also their worst year in terms of profits

• They get their LNG by purchasing it from a supplier or by manufacturing it in their facility located in Florida

• Their long-term goal is to develop the infrastructure necessary to supply their existing and future customers with LNG produced primarily at their own facilities

• As a result, because they have to purchase from a supplier sometimes, their costs go up and down

Are they making money?

The Old Harbour Plant is capable of processing up to 8 times more gallons of LNG per day than the Montego Bay Power Plant, and that’s also where they make most of their money 💰

For 2020, sales from the

• Old Harbour was US$112,334 or 35% of the company’s sales. It’s literally the biggest thing for Fortress right now 👌

• The Jamalco related sales was US$76,862 or 24.1% of sales

• Montego Bay sales was US$77,464 or 24.3% of sales

• Combined, they’re a whopping 83% of this Nasdaq listed company’s sales in 2020 - about J$40 billion! 👏

As it relates to the overall New Fortress Business

• The business is not profitable. They have made a loss every year since 2016

• They are trying to manage their margins, including controlling the cost at which they buy LNG from third parties, charter costs & other expenses

• Their margins are still not stable due to the cost issues being dealt with as they grow

• Additionally, they continue to have significant interest expenses and right now as the business is heavily indebted

• The business is not generating positive FREE cash flow, in fact they are not even generating positive OPERATING cash flow

But a lot of this is due to the continued losses and investments being made

Which obviously created an opportunity for more financing and that’s where Sagicor saw the opportunity to step in 👍
That said, all the above relates to the entire business and not the Jamalco operations alone

For the Jamalco plant, assuming most of the company's costs do not relate to that location and direct costs can be stabilized over the next few quarters, I assume that plant could already be in the black... and if not now then soon

And Sagicor should be smiling we hope 👏

You can also read the full thing as an article here

moneymax101.com/20210620/sagic…

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