CALGARY, Alberta (Reuters) - TransAlta Corp (TA.TO) is exploring the possible sale of its Mexican power plants, the company said on Friday after reporting it climbed back into the black in the fourth quarter on improved market conditions.
Executives at TransAlta, Canada's biggest publicly traded electricity generator, said they will use any proceeds to buy back stock amid a push by its biggest investor to increase the share value.
Chief Executive Steve Snyder declined to give his hoped-for price for the plants, one in Chihuahua and one in Campeche. The facilities, which started up in 2003, do not meet TransAlta's goal of generating returns of at least 10 percent.
"We have received significant interest in the business from several parties and are now exploring the business's potential sale," Snyder told analysts. "Our expectation is to conclude the review process by the end of the first quarter."
The plants may fetch $500 million to $600 million based on other recent transactions, Desjardins Securities analyst Daniel Shteyn said. Their combined capacity is 511 megawatts.
The move follows a push by Luminus Group, which owns about 8 percent of TransAlta's stock, to have the company sell assets, take on debt, buy back large chunks of stock and appoint Luminus representatives to the board of directors.
Shteyn said he does not believe Luminus's move hastened plans to sell the Mexican business, pointing out TransAlta's review of the assets began last year.
"But it definitely strengthens (TransAlta's) hand in relation to what could possibly be a proxy fight," he said.
Snyder stressed his company, known for coal- and gas-fired as well as renewable assets in Canada and the United States, will not stray from its strategy of balancing investment in assets with share buybacks and dividends, all while maintaining an investment-grade credit rating.
While reporting the improved financial results on Friday, the Calgary-based company lifted its annual dividend by 8 percent to C$1.08 a share.
Snyder rejected as "wrong and extreme" the notion that TransAlta expects to shrink by opting to put sale proceeds into share repurchases rather than invest in growth projects.
The company is currently expanding the Keephills coal-fired plant in Alberta at a cost of C$1.6 billion ($1.61 billion) and developing the Kent Hills, New Brunswick, wind farm.
"We will continue to look for opportunities and if we were to find them I think we have the financial flexibility, given our balance sheet, to act on them," he said.
In the fourth quarter, TransAlta earned C$129.5 million, or 64 Canadian cents a share, compared with a year-earlier net loss of C$146 million, or 72 Canadian cents a share.
Comparable earnings, excluding most one-time items, rose 12 percent to C$102.6 million, or 51 Canadian cents a share, from C$92 million, or 46 Canadian cents a share.
That beat the average estimate among analysts polled by Reuters Estimates by 9 Canadian cents a share.
TransAlta shares rose 70 Canadian cents, or 2 percent, to C$32.60 on the Toronto Stock Exchange on Friday. The stock has climbed 27 percent over the past year.
TransAlta attributed the earnings improvement to better operating margins in the U.S. Pacific Northwest and a drop in operating costs at its huge Centralia plant in Washington state.
Power production rose 1 percent to 13,440 gigawatt hours and its units were online 91.8 percent of the time, compared with 89.9 percent in the year-earlier period.
Fourth-quarter revenue rose 4 percent to C$782.9 million.
Additional reporting by Susan Taylor; Editing by Peter Galloway