Reuters storyGood story on the geothermal sector by Reuters today. Ram Power and Magma Energy are viewed as two consolidators in the sector.
Geothermal power waiting for its renaissance
By Susan Taylor
Monday Sep 20, 2010 9:13am EDT
OTTAWA (Reuters) - For all the talk of ageothermal renaissance fueled by government incentives and the quest for cleanenergy, Canadian investors are cool on the sector, despite a list of compellingbusiness advantages.
Industryclaims lauding the renewable, round-the-clock and profitable power source aremore than just hot air, say analysts, who believe better times are ahead.
All that'sneeded are more examples of companies with money-making power plants, a betterinvestor understanding of the business and a dash of economic recovery.
That's atall order, but for patient investors prepared to take a risk, now may be thetime to buy these distressed stocks.
Geothermalcompanies, which tap heat stored far below the earth's surface to generateelectricity, are starting to attract serious interest from big, traditionalpower producers that are preparing carbon offset programs.
EnbridgeInc, Canada'ssecond-biggest pipeline operator, said earlier this month that it would spend$23.8 million for a 20 percent stake in US Geothermal's Neal Hot Springsproject.
"Oiland gas, mining, utilities; they're all circling geothermal. However, thesecompanies are generally loaded with ... engineers that don't know anythingabout geothermal and the last person to try something before it's really provenis an engineer," said Jacob Securities analyst John McIlveen.
"Theyrealize the attraction of geothermal being the only baseload (steady flow)renewable power. I think eventually you'll see many of them entering thisfield, and so Enbridge being the first, I think, was a really good sign."
Severalanalysts raised their stock targets for US Geothermal afterward. WellingtonWest Capital upgraded the stock to 'buy' from 'speculative buy". Over thepast 12 months, the stock has shed more than half its value. It closed at 84Canadian cents on Friday.
Enbridge'sinvestment, one of many it has made in renewable power, but its first in geothermalenergy, briefly lifted US Geothermal's stock by more than 18 percent.
"If wedo see more of that in the space, it could be a factor which contributes to ageothermal love-in," said Mackie Research analyst Matt Gowing. "Andnow is a great time for these guys to get active, because valuations in thesector are very attractive."
Despitedepressed valuations, geothermal companies have successfully raised cash inrecent months, sending a positive signal for future project development andinternal growth.
NevadaGeothermal Power, for example, recently closed a $98.5 million loan with JohnHancock with the first-ever U.S. Department of Energy loan guarantee. It willsave an estimated $9 million in annual interest payments.
CONSOLIDATIONPICKS UP STEAM
Aconsolidation jag that has gathered steam over the past year is seen as anothercatalyst to stock gains. A dwindling number of targets may help drive M&Apremiums higher.
Thedeal-making is driven by the hefty financial and human capital required to developgeothermal power.
Ram Powermerged last year with Polaris Geothermal, Western GeoPower Corp and GTOResources. This month it closed a C$28 million ($27 million) deal to buy SierraGeothermal Power.
MagmaEnergy Corp, Canada'sbiggest geothermal company, has secured a 98.53 percent stake in Iceland's HSOrka through a series of transactions.
"Todaywe have about five or six publicly traded companies in this space, mostly in Canada,"Ram Power's CEO, Hezy Ram, said at a recent conference.
"Eventually,I expect to have just a few champions, large companies that are wellcapitalized and able to develop those projects internationally."
Magma CEORoss Beaty wants to build his company to the size of sector-leading OrmatTechnologies and become one of the industry champions.
But theone-time mining magnate is frustrated by Magma's weak valuation -- the stock iswell below the initial public offering price of just 15 months ago.
Beaty plansto list Magma on a U.S.exchange in the next six to seven months and, as part of that process, tell hiscompany's story far and wide.
Gowing saidthe sector doesn't get the attention it deserves, but believes that may soonchange.
"I'moptimistic that we are in a period of economic recovery and you're going to seea return energy price inflation and that's going to be a key driver to pushgeothermal valuations higher," said Gowing.
($1=$1.03 Canadian)
(Reportingby Susan Taylor; editing by Rob Wilson and Jeffrey Hodgson)
https://www.reuters.com/article/idUSTRE68J21W20100920