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Abraham Gaines

 
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  • Five Reasons to Buy Raser Technologies [View article]
    Dear alphaMS,
    Thank you for your continued interest in my posts.
    I apologize if the languge I used suggested that only $5 million of the wellfield costs were for Thermo and I could see why you would call this "far fetched and ridiculous." In fact, I do not think this is the case.
    Thermo has consumed quite a bit of financial resources. However, as you well know (again please pardon the pun), Thermo is larger than a 10mhw resource. I suspect that some of the additional drilling costs were done for purposes of expanding and exploring the resource for future use.
    $5 million is a general round number figure used per 10 mhw resource. If they were to look at doing 20mhw for example, they'd incur $10 million and if memory serves, they are going to produce 22mhw of power there - so that would be something north of $10million spent right there.
    Now, the $5 million is a general industry figure - call the drilling companies and ask them. Call the other geothermal companies. From time to time, I suspect that figure will be lower (if it's a very shallow resource) or higher (if it's deep, if they encounter faults or granite caps, or if they run into unforeseen difficulties like breaking a liner or something like that). My point was not to get hung up on the $5 million figure (though I will defend it), but rather to demonstrate that the business model uses cash up front to the tune of roughly $5 million (if I increased that number to $7 or even $10 million to be conservative, my argument would still make sense) and then returns cash in the form of fee payments and electrical sales in the form of a $25m NPV. This also does not provide RZ with any value of owning the plant, which is a valuable balance sheet item itself. Either way, we can argue $5 million vs. another larger number, but the payback is substantial and the business model quite strong.
    Although there are various costs which will not be reimbursed, the important one is the "wellfield development costs" which represent RZ's equity investment in each LLC/drilling/productio... program.
    I hope this helps.
    Aug 18, 2008. 09:02 AM | Likes Like |Link to Comment
  • Five Reasons to Buy Raser Technologies [View article]
    Dear BrianZach
    Thank you for your comment. I appreciate your desire to see revenue before investing in this company. I also believe that is not only a very common perspective, but also the one of many short sellers.
    One of the reasons why I believe the stock is a buy now (vs in November), is that although they have no revenue now, they will have revenue in November as Thermo gets turned on and power sales begin.
    At that time, in my opinion, several people will reconsider their perspective and will say "ok...they have revenue now - I can justify the story."
    Buying the stock now provides an investor with the opportunity to realize gains when other people figure that out and perhaps when short sellers realize this and head for the exits.
    Now, if you think there's no way they will have revenue in November, that's a different story. You might want to look at their power purchase agreements and the construction of the plant. I'd be curious what evidence you'd have that the company will not produce revenue at that time.
    Aug 18, 2008. 08:08 AM | Likes Like |Link to Comment
  • Five Reasons to Buy Raser Technologies [View article]
    Dear alphaMS,
    1) there is nothing to stop them from filing another shelf. They still need more money to continue their drilling - that is not new news to anyone. My point was simply this: what if they find other sources for the capital and don't need to do another shelf? Perhaps they can do a debt deal? Simply stated: if someone considered the existence of the ATM deal and them consistently selling stock every day to be an overhang, that is gone. If an investor thinks they dont need to raise money, they're wrong.
    However, the company has talked about things like "prepaid PPAs" and other similar deals which would give them some more capital upfront, and would therefore reduce their cash needs.
    Cash needs by themselves aren't awful - once the Street can see RZ's ability to generate profits and cash on each individual deal, they will be more willing to give them money. Until then, it feels like a bottomless pit.
    2) regarding other things they have said - I would not hold the current management team accountable for things the prior team said about the automotive business. Regarding the ML committment - you are partially correct. If you recall, they first drilled at Truckee NV - that was supposed to be the first plant and that was what the ML committment letter was based around. That resource is adequate, but RZ decided to pursue Thermo because it had more near-term promise. They started drilling on that a short while ago and will be putting that plant into service Oct/Nov. So...yes, the ML financing for Truckee didn't happen in the timeframe they expected - so it is "late" - something I cited above in my initial comments. However, one of the beauties of the RZ model is its portfolio approach. Since Truckee was only so-so, they moved onto thermo and here we are with a very hot resource.
    I have no reason to doubt what Geothermix said about the resource. I suppose that Geothermix, who is one of the most well-respected authorities in the industry would have a lot to lose from lying about this resource. Further, I suspect that at some point the report will be made public (though I don't know for sure) and you can see for yourself how important it is vs. others in the past 25 years in NA.
    Regarding its value....if you just assume what RZ's numbers suggest (and these figures are all available from the 8k they filed in January around the Truckee financing committment which, by the way was signed when PPA prices were far lower than they are today - so the values have likely gone up)....the NPV is $25m for every 10mhw. At 238mhw, that would be a market value of $595m. Further, although I don't have my notes handy (I'm typing on a laptop and it's Sunday evening...so pardon my rough calc here)...but I recall that Ormat with a value of roughly $2 billion had something like 300-400mhw in production. That's a value of $5 per mhw. If you apply $5 to the 238mhw, that's a market value for Thermo of $1.19 billion. Let's be conservative and only use the p90 value of 130mhw - that's a $650m value.
    I hope you don't think, as you point out, that I am "making anything up."
    Last - you questioned the math on the $25m in NPV. All the figures are in their 8k - payments to RZ every year for years 1-25 are there. I used a discount rate of 15% to calc the $25m NPV.
    Also, the non-reimbursed development costs you highlight are a very good point. However, you have the numerator (costs), but not the denominator (number of wellfields this represents). This could be Truckee, Thermo (multiple sites there), and some driling at other locations - we just don't know. What we do know however, from general work in the geothermal industry, is that a 5-hole wellfield costs "approximately" $5 million. Some are less (like Lightning Dock) and others are more (if they are deep or they encounter problems at the site). There are ample places out there which will confirm that a general wellfield costs about $5 million.
    I hope that helps - please let me know if I can provide more information or color.
    Aug 17, 2008. 08:52 PM | Likes Like |Link to Comment
  • Five Reasons to Buy Raser Technologies [View article]
    Dear AVCONSULT,
    I don't fully understand your question. Typically, in a convert, the convert-buyer owns the bond and shorts the stock so he is effectively "hedged" against any movement in the stock while he collects the coupon from the bond.
    Regarding the short interest, since the stock wasn't very easy to borrow and was quite thin heading into the convert, Raser undertook the buyback and also a collar deal with ML. As a result, I don't know how many of the 8million shares which are reported short under Bloomberg are related to the deal and how many were shorted directly to ML, as ML acted as the other side of the trade to enable the convert to happen.
    What I will say however, is that the short interest was in the 6 to 7m share amount prior to the convert - so let's just look at that figure for the purpose of this discussion.
    What will create a short-squeeze? There are a few things in my opinion - in reality, I don't know if any "one" of these will actually burst the stock...my experience is that short squeezes tend to happen gradually and having been on the "wrong side" of them many times, I can tell you they pick up steam (pardon the pun) as the stock moves higher. A short who doesn't want to cover at $10 or $11, will be more inclined to cover it at $12 or $14. it's counter-intuitive but short-squeezes can be very emotional.
    Here are a few things which could contribute to a squeeze based upon reasons I've heard people tell me they're short. Typically, squeezes start when legs get kicked out from the short-stool:
    1) Merrill financing closing
    2) Thermo getting completed
    3) Electricity flowing from Thermo and revenues flowing to RZ
    4) A deal with Google as a power purchaser or financier (that would be a mother-load, since Google investors would be introduced to RZ - look at what happened to RZ stock when they announced their deal with UTX last year)
    5) large institutional holders recalling their borrow, forcing buy-ins

    The bottom-line is this: stocks with short interests that are this large a percentage of the float and which don't have high short interests because of a convert (remember we're apples-to-apples here ignoring the size of the convert because of the funkiness of the ML deal), are considered very "crowded." Anything can set them off and create a stampede. Given how "small the door" is on this one - when people feel the need to run for the exits, they will find themselves very boxed out and the stock will lift without much for sale.
    Look at who holds the stock - it's a pretty smart group of buysiders. Successful, smart hedge funds and a few long-only guys. My sense is that they're unlikely to part with big chunks of stock when it begins to lift - which will only create more of a frenzy.
    Is it worth it to remain short? Only if you think this is going to zero. Otherwise, you're playing with fire in my opinion.
    Aug 17, 2008. 08:35 PM | Likes Like |Link to Comment
  • Five Reasons to Buy Raser Technologies [View article]
    Dear OPT:
    your frustration and anger is understood. I share your frustration. However, let's look at the alternatives:
    1) they could have continued with their ATM program (at the market). In my opinion, that was somewhat of an "overhang" on the stock, since they were in the market (through ML) selling roughly 15-30k shares per day. The stock was handling the sales reasonably well...but nonetheless, RZ being in the market every day raising equity was somewhat of a lid on the stock.
    2) so if we agree that they needed to raise capital to continue to fund their drilling program (remember, their business model is very cash flow positive, but only AFTER such time as they have several plants up and running and the receipt of electrical sales, fees, etc can support their drilling program.....so now we decide: should they continue to dribble shares out or do them all at once? one could argue for either case, but if you take the stance that raising it all in one piece would remove the lid, then you've got 2 positives - 1) all the cash in-hand and 2) no more lid.
    3) once you decide that they're going to sell 2m shares - I don't think it's plausible to expect them to sell them at a premium to the market. Further, even if strong news were coming in the near future, perhaps they had other important uses of the cash now.
    4) so now that we "agree" that it's unlikely for them to be able to sell all this stock at a premium to the market, we should debate how big a discount they should offer. That's a matter of opinion, but if you owned 2m shares and wanted to shop them around on the Street, I'd be surprised if you got better than a 10% discount to market.
    In summary to your post, I hear your frustration....getting diluted is never something a shareholder wants, but they have been very open about saying they needed to raise cash to further support drilling. Additionally, once they announced the shelf, we should have all been incorporating the additional shares into our diluted share count, so this isn't a surprise.
    I'm sorry you're frustrated, but a development stage company has to raise money - particulary when they have such ambitious growth plans. they will raise more money in the future - be prepared for it....but perhaps it won't be equity.
    Aug 17, 2008. 08:24 PM | Likes Like |Link to Comment
  • Raser Technologies: The Long Case [View article]
    Gentlemen,
    Your point regarding cool water is relevant and important.
    Usually, the cool water is used to cool down the refrigerant - that is the butane or the isobutane - that is the secondary fluid which turns into a gas and then moves the turbines.
    In areas in which there are cold water resources, the operator of the plant can obviously use this water to cool his refrigerant.
    However, as you properly point out, in the desert this can be somewhat more difficult. However, this is not a new issue and certainly is not unique to Raser.
    If you were to vist an Ormat plant for example, you'd see huge cooling towers - these are usually air-cooled towers with large fans. Take a look here (www.ormat.com/projects...) you'll see the towers for yourself.
    Another way to cool the refrigerant would be to bleed off some of the brine (that's the salty water pulled from the earth) and create what's called a "cooling tower." In a cooling tower, the water is dripped down, fans blow on it, and the evaporation causes the water to cool. This enables cool water to then chill down the refrigerant.
    One other thing to note is that when Raser negotiates land deals with folks who have hot water in the ground, they usually (and this is typical) also negotiate rights to the surface water as well - this surface water is typically cool enough to chill down the refrigerant.
    You are correct however, in pointing out that because of these obvious thermodynamic items, the plant can produce more electricity in the cooler months than in the summer months.
    Chena is a unique example - they do have very cold water which allows them to really chill down the refrigerant. That helps make up for otherwise relatively weak pressure/flow.
    I wouldn't claim to be a geologist - so you will have to wait to see what the independent geologists say about the pressure and flow in Raser's wells, but you can read a current geological survey which was written about one of Raser's properties - it's called Lighting Dock - and the report is right here (geoheat.oit.edu/bullet...). This will give you all the pressure, temperature and flow information you'd possibly want.
    It will also explain how reinjection wells work. See the thing is, you're not actually chilling the water - you're only chilling the secondary fluid. Sure, this removes some of the heat from the hot water, but it's not enough (if your geologist places the reinjection well in the right spot - typically down the hill) to muck up your hot water source. Again, I'm not a geologist, but folks sometimes reinject at different depths - if they were to reinject cooler water right into the same body of hot water, it'd be like (pardon the vulgarity) pis*ing into the wind. Geologists are usually smart enough to do that - Ormat sure figured that out.
    Also, the temperature of the water below the surface is not affected by the ambient temperature - so winter/summer - does not matter.
    On the topic of volume....I use a system called Bloomberg. It's typically what most professional investors use. It allows us to examine volume on any particular series of days - we can adjust the start and end dates....pretty easy stuff. I don't really know how Yahoo works...sorry.
    Last item - you pointed out that "nowhere does it say that Raser burns that much money." You're right. However, an astute investor who actually reads the cash flow statement will subtract the "one time items" which helped to inflate the cash flow (like exercise of warrants - see that brings cash into Raser) and would conclude that on a pure operating basis INCLUSIVE of the wellfield development, they were burning that much. I apologize if that wasn't entirely apparent, but you'd have to actually parse through the cash flow statement to know it. I'm sorry if I gave folks the credit they didn't actually deserve by assuming they did that.
    I hope that answers all of your questions. Once again, please feel free to toss all your "beefs" my way - I'd be happy to answer them. sorry if it sometimes takes me a little while to reply - I actually do have a job :)
    Fondly,
    Abe
    Mar 26, 2008. 05:15 PM | Likes Like |Link to Comment
  • Raser Technologies: The Long Case [View article]
    Dear AlphaMS,
    Thank you for your posts. I will address each of your concerns in order.
    1) average daily trading volume - this was an approximation and meant to signal a rough range. Further as you well know, one can look at this over various time-periods. For example, from the period 1/3/06 until the present time, the average trading volume is actually 139,000. If you look at 1/3/07 until the present, the figure is 213k. I wasn't trying to misrepresent the actual trading volume - rather, for an institutional investor - one who tends to purchase in denominations of 50-100k shares, this was meant to represent a range. As institutions, we look at the trading volume and say to ourselves, "I want to make this position x% of my fund - how many days of volume will I represent." By stating "approximately 120k", that would give an investor a rough sense. I sincerely apologize if this item distorted your perception of the article or of my knowledge of the subject matter.
    2) Regarding the language I used to describe their business model. You are accurate and the wording should have been "Raser is a development-stage company which seeks to sell steam-based electricity." My tenses were incorrect (by using "sells" instead of "seeks to sell." However, with the signing of the recent power purcahse agreement with the City of Anaheim, they will be selling steam-based energy imminently. I will be glad to use the proper grammar/tense in the future. Please understand, I did not mean to be misleading in that choice of words - most readers would understand that the business description wasn't meant at all to be misleading particularly when I then comment that they have "no" revenue.
    3) your point about claiming they have "no" revenue is also accurate - it is a number greater than zero, and therefore my use of the word "no" was misleading. However, my point (similar to the share volume comment) was meant to be directional. Last quarter, the company reported $320,000 of revenue. In the institutional world of money management - particularly for a devopment-stage company, this is effectively zero. While $320k is $320k and it's not "literally" zero, it is close enough to demonstrate the point, which is that to date, the company has effectively generated no revenue from their primary business activities. Biotech companies which receive small sums to fund r&d and call that revenue are still considered to be "pre-revenue" even though they may actually report a modest sum. Once again, please accept my most sincere apologies for not using terms which you find appropriately accurate.
    4) Regarding your cash burn discussion, I will unfortunately have to disagree with you. I will admit, that by simply reading the 10Q, some investors wouldn't conclude that the cash burn was as large as I state. However, if you dig through it and start with net income, then remove the cash generated from the warrant/stock and option issuance ($3.8m) as well as the monies spent on wellfield development and power project development deposits ($2.5m and $3.7m, respectively), you get into the range I indicated. An astute investor will further realize that the drilling costs ultimately get reimbursed by the LLC, and so my discussion of the forward-facing cash "burn" would simply be the operating costs, which average approximately $1m per month - I was being generous in suggesting they could get as high as $14m per year.
    In summary, some of your points are valid, although only on the semantics. If you wish to debate the merits of the company's business model or any of their claims, I would invite you to lay out your points in a concise and professional manner. I would be happy to address them again - point by point and will make sure to use tenses and grammar which are appropriate. You were comfortable telling me that my essay was a work of fiction - please provide your counter points - raise as many questions as you wish, and I will address them in this very public forum immediately. Good luck.
    Mar 25, 2008. 01:56 PM | Likes Like |Link to Comment
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