Tapping into Geothermal

I've mentioned Iceland and geothermal power several times in the past as being a potential catalyst for the country to start on the path back to being a viable investment destination. A few days ago I caught a show on CNBC World called Deal Flow, which is a quirky show where the hosts, who seem to have Regis and Kelly thing going (so said my wife), try to delve into topics with potential investment merit. If you look at the topics on the show's website you'll see that they actually cover some interesting ground.

Geothermal and hydroelectricity have intrigued me but I've never invested in either one. I think the reason that I do find them intriguing is that unlike solar, part of the theme doesn't rely on homeowners spending a lot of money (even with various subsidies) to have green energy. This is part of the logic in having owned FPL Group (FPL) for clients for so long (FPL has a huge footprint in windpower).

In watching the show it was mentioned that about 20% of electricity in Iceland is geothermal and about 70% is from hydro (according to Wikipedia the numbers were 24.5 and 75.4 respectively in 2008). Geothermal accounted for 87% of heat at hot water requirements.

Geothermal is available in numerous places around the world, so this is not an Iceland post beyond the fact that I think it can play a big role in any potential economic revival of the country.

The program interviewed people from a fund domiciled in Iceland but with operations all over the world (California, Canada, Mexico, China and the Philippines) called the Geysir Green Energy Fund. As best as I can, tell the fund is not traded on an exchange and since its latest annual report is from 2007 (the TV show appeared to be a couple of years old) I'm not certain the fund still exists but the site and and all the info within is pretty good way to learn more about the subject.

For now the easiest way to invest in the segment might be Ormat Technologies (ORA). Ormat is based in Reno but has a presence all over the world. The stats aren't great; it is somewhat volatile and many of the folks in management all have the same last name, but it should be obvious that buying into this theme is far from riskless.

If you look for other "geothermal" stocks on Yahoo Finance you'll see a few other names trading for a dollar or less. If you know of any other names please leave them in the comments, but I'd rather not turn this into a series of touts for stocks trading in Vancouver for $0.12. According to this article from a couple of years ago IdaCorp (IDA) uses geothermal in what appears to be a similar way that FPL used windpower, though you should explore that on your own as I cannot vouch for it. There are two more recent articles on this subject here and here.

Comments

[danno:]

Most of the other stocks in geothermal are really risky and unproven. Ormat has more expertise in this field than nearly all the rest of the geothermal companies in the world combined. I wish there were other quality plays in the sector but there really aren't. Energy Development Co. of the Philippines is another stock that all geothermal power, but it's only in the Philippines and therefore much more risky and makes most of its money as a utility and doesn't seem to have the growth imperative that Ormat has. Anyhow, I think Ormat helps EDC develop its plants.

Not sure what to think about Calpine. Any opinions out there?

Oct 15 10:52 AM

[tc1:]

Roger, i've enjoyed learning from your insightful articles for Seeking Alpha.

Many articles have been posted here at Seeking Alpha on GEOTHERMAL over the last several months with specific good stock recommendations --especially since this past Spring when the Dept of Energy announced big forthcoming subsidies for geothermal.

You've briefly mentioned ORA, the grand-daddy in this sector, but Nevada Geothermal (NGLPF.OB), Raser Technologies (RZ) and U.S. Geothermal (HTM) are already prominent as the promising juniors in the sector, with likely the most upside shareprice gain looming in the not-so-distant future.

NGLPF's stock is already a double gainer since Spring (up from around $0.60 back then to $1.20 in intraday trading today), steadily moving up in just the last several weeks on news that it had brought its first geothermal plant online earlier than previously announced.

RZ is way down from its this-year heights of over $4 on a dilutive stock offering to pay down debt, but late last year it demonstrated that it could bring its first geothermal plant to operational status in a mere 6 months, far faster than the 1-2 year period previously expected. RZ has many other promising geothermal sites that it is presently developing, with various opportunities for funding the upfront costs (e.g., via power-purchasing agreements or PPAs from electric utilities).

HTM's technicals look pretty good, trending upwards since last Dec. with steadily higher "lows" in its relatively non-volatile trading pattern; after the big jump and shareprice "reset" in late May into June, it has been trading sideways the last two months (mostly over $1.55) and appears due for a big upward breakout as this geothermal sector gets much more investment dollars coming its way (e.g., see the series of articles recently posted here at S.A., "Geothermal Is Getting Red Hot," Parts 1 & 2, by The Green Investor). HTM's CEO was recently interviewed at Wall Street Transcript and reported, "We have currently two producing power plants, one in Idaho and one in Nevada. We are working on developing a new site in Oregon for our third power plant. And then in addition to that we intend to expand the production from our existing power plants in Idaho and Nevada."

In an interview by The Energy Report with Greg Reid (an expert on the sector, director of Clean Technology at Wellington West Capital Markets), which was posted April 19, 2009 here at Seeking Alpha, Reid postulated a NAV of $4-$5 for these and several other junior geothermals, given the fact that they have geothermal leasing rights on extensive land holdings in the western USA and given the fact that the utility companies eagerly want more and more geothermal power as part of their portfolio since geothermal (unlike solar and wind) is a baseload power source, available 24/7.

So any dips below the price of $1.20 for NGLPF (its new high today after a steady climb) and $1.55-$1.60 for RZ (its recent oversold trading price) and $1.55 for HTM would appear to be good opportunities for any investors wanting to take some "play money" (not anything you need over the next 12 months) and turn into potential double, triple or quadruple gaining stocks.

Due your due diligence and read up on Ormat Tech (ORA), Razer Tech (RZ), Nevada Geothermal Power (NGLPF.OB), U.S. Geothermal Inc. (HTM), Sierra Geothermal (SRAGF.PK), Magma Energy (MGMXF.PK), Polaris Geothermal, Western GeoPower, et al. (NOTE: Polaris, Western, GTO, and Ram have joined to create single entity)

Disclosure: i'm long with small positions in nearly all of these companies (somewhat larger investments with ORA, RZ, HTM and NGLPF).

Oct 15 12:36 PM

[H.J. Huneycutt:]

I'm long on Raser (RZ). It might have the most upside of all the geothermal plays. It's very risky, but it has a lot of promise. As the poster above articulates, they have proven they can bring a plant online using their model. What they haven't proven is that they can be profitable over the long-term. Of course, high upfront costs are one of the scary aspects of investing in geothermal, but it could reap huge benefits in the end. It is one to look into at the very least.

I would recommend RZ more as a relatively small (think less than 3%) somewhat speculative position in one's portfolio. Even if it's only 1% of one's portfolio, it has potential for gains over 800%, so it would have a noticeable impact on total return, while not destroying one's portfolio if it goes bust.

Oct 15 01:47 PM

[UbaTuba:]

BTW: Magma is run by one of the most successful and motivated mining serial-entrepreneurs on the planet - Really! Check out Ross Beaty, CEO of Magma Energy at: www.reuters.com/articl... if geothermal is of interest to you. Also, the Magma website is: www.magmaenergycorp.co.... It's my opinion,( and yes I do own it), that you're doing yourself a favor by thoroughly investigating this management team and company.

Oct 15 01:59 PM

[UbaTuba:]

Check out todays announcement and Ross's substantial investment of his own capital: www.magmaenergycorp.co......
- Also note how much has been accomplished in only the last 12 months at Magma. This is typical magnificent Ross Beaty activity with his companies. No, I do not personally know or interact with Ross, other than having met him at a couple of energy investment conferences. I'm promoting it, because geothermal (and hydro) are the only Base-Load alternative energy sources available that can easily support themselves without subsidies, the technology is proven; yet, is not widely known to the public, and virtually EVERYONE who loves GREEN is going to love Geothermal!! Try that with Coal or Nuclear!

Oct 15 02:35 PM

[Mayascribe:]

tc1: Good comment. I've been holding on to (HTM) for a while. Hasn't really done much, but I have faith.

Oct 15 03:50 PM

[gizzardboy:]

I have a small long position in Geodynamics, Ltd. in Australia (GDYMF.PK), but volume is so low in the US that it is kind of a problem. According to the company website www.geodynamics.com.au... the latest price in Aussie $ was $.97 (at today's exchange rate that is US$ .89,
but the last trade recorded was back in July for US$.735 . Everyday before the company website dropped their reporting, the ASX volume was tens if not hundreds of thousands of shares. They are doing hot fractured rock geothermal, where water has to be introduced via an injection well and then is recycled. I think that I'm benefiting from both from the advances the company is making and the strengthening Aussie dollar.

Oct 15 04:21 PM

[terryhallinan:]

Ram Power swallowed Polaris Geothermal and Western GeoPower and will be trading shortly. It is to be headed up by former executives of Ormat apparently not as keen on the sluggish growth as others.

A minimum of DD would have shown Magma Energy (MXY.TO) has even bought an interest in an Iceland geothermal field to the dismay of Icelanders.

A most interesting stock Down Under is Panax (PAX.AX). Panax is headed by a co-founder of Geodynamics but is not into drilling deep into the bowels of the earth as other deep thinkers are with all the risks of an uproven technology.

There are a great number of opportunities, maybe most particularly in technology utilizing low temperature geothermal resources, but you have to look for them.

Best, Terry

Oct 15 07:25 PM

[The Geoffster:]

Magma Energy (MGMXF) is a pure geothermal play with proven management but unproven earnings. I own it and recommend it to those looking for alternative energy investments in efficient green technology. I also own Ormat (ORA). It's based in Israel but sells its equipment all over the world.

Oct 15 09:06 PM

[cstauffer:]

I accidentally stumbled over LSB Industries, Inc.(LXU) and through my research on the company I was pleasantly surprised that over half of sales come from manufacturing and selling geothermal and water source heat pumps and related HVAC supplies. The company is headquartered in Oklahoma City, but it has an international sales footprint. It is very profitable and is sporting a low 10X forward PE. Its ROA is 8.4 and ROE is 20.5. I find this company to be a conservative investment if one is looking to investing in the growing interest Geothermal.

Oct 15 09:25 PM

[Douglas Hvi...:]

Note that in addition to geothermal, there is geoexchange: the conditioning of buildings using heat pumped to and from the ground. Don't know investement opportunities, except the LXU mentioned above, but it works very well.

Oct 16 09:36 AM

[gizzardboy:]

If you want to talk about the kind of geothermal that I prefer to call ground source heat pumps, I like WaterFurnace International(WFIFF.PK) with their plant in Ft. Wayne, IN and trading on the Toronto exchange for about $25. Whereas LSB is about half heat pumps and half chemicals, Waterfurnace is 100% ground source heat pumps and installation.

Oct 16 10:45 AM

[Heyya:]

On Oct 15 09:06 PM The Geoffster wrote:
> I also own Ormat (seekingalpha.com/symbo...).
> It's based in Israel but sells its equipment all over the world.

Ormat (ORA) doesn't only sell equipment all over the world, they own and operate plants all over the world. Ormat has more on-the-ground experience than any of these other companies. Not only do they have a revenue stream from real operating plants, they have strong growth and expansion plans as well. They are proven, whereas most of the others are having a difficult time getting off the ground, especially with the credit crunch.

Oct 16 03:25 PM

[User 502873:]

Ok well then check out this company that is still private for the moment.
delugeinc.com
This company has been around for 10 years now. They have numorouse projects going on but the current "Natural Energy Engine" has the most exposure at the moment. The NE Engine is primarily commercial but eventually will be scaled down in size

Oct 21 08:04 AM