Mentioned on Gumshoe
posted on Mar 24, 2009 05:43AM
Turning Geothermal Energy into Power
“Limitless Profit … from Sonoma Grizzly Power”
Now this is what a teaser ad is all about — a bold copywriter doing enough research into the history of a particular investment thesis or company to track down something worthy of an action movie screenplay, and using that to hook our interest in a newsletter.
Today it’s Byron King, better known for his Outstanding Investments newsletter but today shilling for his newer Energy and Scarcity Investor.
Here’s the first part of the ad, just to give you a taste:
How can you not love that? A bear hunter? Come on, this is good stuff! Here’s some more on the bear hunter, just to set the scene:
Call me a sucker, but I’m hooked — it’s a good story. Good enough that it’s been used before to hook folks into articles about this investment idea — probably the first time was in 1968, when it was the lead for a Time magazine story about this very same topic, geothermal energy.
Time called it a “steam rush” back then, akin to the earlier California gold rush, and though it didn’t really take hold as a “rush” back in the late 1960s, you can argue that, for investors at least, geothermal energy is once again a hot topic.
I’ve written about geothermal companies a few times in this space, both for prior ads for this Energy and Scarcity investor (that was the good ‘ol “slow volcano power” campaign), and for Green Chip Stocks, which has also come around to touting one of these companies again, after taking a few months off.
And though this ad adds some significant new copy to the old “slow volcano power” ads, not just the stuff about the bear hunter but the newer stuff about some specific government catalysts — including a possible EPA decision next month — the companies it teases look like they’re exactly the same as they were last time around.
Don’t worry, I’ll still share the names of these companies with you — no need to shell out for this pricey newsletter ($750 a year, which they say is a 50% discount) if all you want are a few “Sonoma Grizzly Power” stock ideas.
First, those catalysts that King says are coming …
They skipped a line in the ad, it appears, which is why that “here’s how:” doesn’t seem to make sense, but essentially they’re saying that the first catalyst will be the EPA claiming power to regulate carbon as a pollutant under its air pollution mandate; the second one will be either a carbon tax or a cap-and-trade system that Congress is expected to push for and Obama has supported in the past; and the third is that California renewable energy law that does indeed go into force in 2010.
Those are all real, with the California one being law and the others being “expected” — they’re not set in stone, of course, and laws and regulations can always change, but they may provide more impetus for “clean energy,” and geothermal is a favored “clean energy” type by many folks — it’s very clean and essentially carbon neutral, as far as I know.
It does, however, have more than one drawback. The biggest drawback is that the steam vents Elliott apparently discovered, in the Geysers, stand as one of the few examples of prime geothermal power sources that are easy to tap and close to population centers — the US doesn’t have a lot of “hot spots” close to the surface, unlike our friends in Iceland. There are ways around this, of course — electricity can be moved, and lower-temperature geothermal energy technology is in the works, so perhaps there’s hope for this stuff. I don’t really know enough about the science or geology of it to tell you one way or the other.
But I can tell you about the five companies King is teasing in this “Sonoma Grizzly Power” ad … let’s take them one at a time:
This is our friends US Geothermal (HTM), the same one teased by Jeff Siegel for Green Chip Stocks, I wrote about this most recently just a few weeks ago. They were also mentioned positively in a Reuters article over the weekend, perhaps part of the reason for the stock’s 10% climb today.
Moving on …
This looks like it must be Nevada Geothermal (NGP in Canada, NGPLF on the pink sheets), though someof the clues might be a bit out of date (they claim a larger number of homes powered, but do have the 20 year power purchase agreement with the Nevada utility). They also have gotten about that much in grants from the government, though I’m not sure they’re for a different site (the one that’s supposed to go operational by the end of this year, with a plant built by Ormat (ORA), is described here).
That’s also maybe slightly out of date according to the info I’ve seen most recently, but this sounds like Sierra Geothermal (SRA in Canada, SRAGF on the pink sheets). I don’t know that they have an “analyst” following the company, but they did get “factual” coverage by S&P just last fall (meaning, no analyst estimates, etc., just collecting and publishing the basic operating info about the company).
This is Polaris Geothermal (GEO in Canada, PGTHF on the pink sheets). Their primary project under development right now is in Nicaragua, and they haven’t produced any energy yet, but they have sold some carbon credits already.
I don’t know why these 20-year “exclusive” contracts are so exciting — it does not appear that the world will be cutting its energy demands, particularly clean energy demands, in the coming years, so anyone who can build a plant is likely to have no shortage of customers. I guess having a long term deal provides some stability and assurances that you’ll have a nice hungry electrical grid ready and waiting for you, but the “exclusive” bit seems a little silly — it’s not like there are four geothermal plants being built at each location, auditioning for a prime role that only one of them can play.
This is Western Geopower (WGP in Canada, WGPWF on the pink sheets). This one has been covered several times here, too, I think it was initially sent in by a reader back in 2007 who supplied some comments, and they do indeed have two fairly advanced projects, one in the Geysers and one in BC.
And actually, it’s not just US Geothermal spiking today, it seems to be most of these guys, all of the ones mentioned by Reuters are up close to 10%, and the rest of them are also doing well — so either the Sonoma Grizzly Power ad is really getting some attention, or everyone’s just excited that the animal spirits have returned to Wall Street, and they’re looking for an Obamalicious investment theme.
Keep in mind, if you choose to research these companies, that they’re all really, really tiny — US Geothermal and Western GeoPower are probably the biggest (haven’t checked the share counts for all of them) with a market cap of right around $50 million each, and most of these companies trade for far under a dollar a share, and have issued a lot of warrants to raise money and may well issue many more shares to fund themselves (or take on more debt).
Geothermal plants can run for a long time, and they do supply wonderfully clean “baseload” power (meaning, power that’s “on” all the time, unlike solar or wind), but the plants are expensive to build and most of these companies rely on just one (sometimes two) plants or sites to turn them into operating companies that have a hope of revenue and profits in the future — which means you face additional operating risk investing in these tiny guys, too, since a plant that goes offline for any period of time (or a plant that fails to get built on schedule) would probably throw their cash flow way out of whack.
That’s not to say that any of these are bad investments, of course — just that they’re all speculative microcaps, with at least some of the risk that that those kinds of stocks generally bring to the table. There are larger and more solid companies in this space, too — Calpine, the big California utility, is by far the biggest generator of geothermal energy in the US right now (they own most of the plants at the Geysers), and they managed to go through bankruptcy before the credit crunch so their balance sheet is cleaner than some; Ormat (ORA) is one of the big contractors for building geothermal plants as well as operating some of their own, and they’re priced as a nice, steady growth stock; and Raser Technologies (RZ) are the folks trying to build lower-temperature geothermal plants (mostly in Utah) and license their technology that might help make geothermal energy more feasible in spots that aren’t quite as hot (they’ve been actively teased many times, too, by the Oxford Club).
So, will this “steam rush” make you money? Your guess is as good as mine, but of course very few geothermal companies are profitable, or even particularly close to becoming profitable, so there may be no particular “rush” — it depends, in part, on whether you believe in the immediacy of the catalysts King tells us about. My guess would be that we’ll see these stocks all continue to bounce dramatically over the course of the next couple years as political winds change directions back and forth, and as the companies fight their way through the challenges of actually building and operating new power plants.
But as always, that’s just my guess. Let us know what you think with a comment below, if you please.
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