Alterra Power MGMXD

strategic direction

[calmandquiet]

A few thoughts about Alterra from an outsider. I am not currently a shareholder.

I have been following Donald McInnes's companies since I was a student in 2005. Although I had no money to invest at the time, it was clear that Plutonic was a winner. In hindsight I should have bought on margin, but oh well.

I am long TGM.V, a company he is a board member of (based on its own fundamentals of course, but McInnes's involvement is what led me to check the company out).

The reasons why I am not as excited about Alterra are the following:

1. I dislike their primary asset in Iceland. They need to divest out of Iceland, and in my opinion, out of geothermal altogether. The recent video posted here showed that Ross Beaty seems to understand that now. What do some of the posters here think about the competitiveness of the aluminum plants which buy Orka's power? If the aluminum price continues to lag, will Glencore decide to shutter some of their aluminum operations to reduce global aluminum production? Will Orka's buyer be a survivor of that process, or is it weak relative to its peers? I don't know the answer. But I know that my capital is getting better returns elsewhere.

2. Bute Inlet is never going to happen. If you think it is, then either you're not from BC or you just have insufficient knowledge of BC politics and the current BC electricity market. Maybe it will in the distant future, 10+ years, if the stars align for LNG exports and Site C can't cover the demand. Highly unlikely. Bute Inlet is in the investor materials still so that they don't embarass themselves. It will be a "on the shelf" for a long, long time.

If Alterra divests from Iceland (it was a decent opportunistic buy after the crisis) then I would read that to mean that Beaty wants to deploy capital according to what he said in the video, i.e. renewable power for a remote North American mine. Maybe a solar plant to power a Nevada gold mine? A run of river hydro plant to power a northen BC mine or LNG facility? Just buy up other people's wind projects like an idiot? Maybe use the Iceland proceeds to ensure maximum ownership of the other Plutonic projects (the hydro extensions). Maybe build an offshore wind farm for Vancouver. That would be fantastic.

If the company moves away from geothermal and into wind, solar, and hydro, then a large part of Beaty's last five years of "schooling" in geothermal energy will be wasted. But his abilities and network, and that of the other leadership, still have winning potential. Hence I continue to watch the company. 

I tend to agree with the current valuation. The company is not trading at 0.25 book. It's trading at 1x book. The market has ignored all the "assets" in the balance sheet except the PPE that actually has value. All the other assets listed there are garbage. 0.30 a share is about right given the current earnings and outlook.  

Beaty needs to throw in the towel on the idea of a world class geothermal company. Will he do the rational thing, or does he have some ego tied up in the idea still? 

Just my thoughts.