Magma Energy Corp reports Q3 results

Magma Energy Maule drill site, Chile (source: Magma Energy)

Alexander Richter 17 May 2010

In a release, “Magma Energy Corp. reported its financial and operating results for the third quarter ended March 31, 2010. The Company also provided an update on its operations. This earnings release should be read in conjunction with the Company’s MD&A, unaudited Financial Statements and Notes to Financial Statements for the corresponding period along with the audited consolidated Financial Statements, the related MD&A, and the Annual Information Form for the year ended June 30, 2009. This information is available on the Company’s website at www.magmaenergycorp.com and has been posted on SEDAR at www.sedar.com.

Commenting on today’s announcement, Ross Beaty, Chairman and CEO, said, “Magma Energy continued to build its global geothermal power business in the third quarter of fiscal 2010. We acquired an additional 5.24% interest in Iceland’s HS Orka in March and May which increased Magma’s total power generation to 94 MW and our geothermal resources to 827 MW, continued our expansion efforts at our Soda Lake operation in Nevada, and were awarded the 100,000 hectare Pellado exploration concession and the 4,000 hectare Maule exploitation concession in Chile. We began new drilling programs in Chile, Iceland and Nevada and I expect we will continue to increase our geothermal production and our in-ground resources during the balance of 2010.”

For the third quarter ended March 31, 2010, Magma reported net income of $142,000 ($0.00 per share), including the Company’s share of HS Orka’s net income of $3.60 million. The Soda Lake operation earned revenues of $1.29 million, gross profit of $417,000 and net income of $72,000 after deducting non-cash and other related expenses.

On a cash basis for the quarter ended March 31, 2010, the Company spent $2.0 million on operating activities and $13.1 million on investing activities, including investments of $7.1 million to acquire an additional interest in HS Orka, $2.8 million to acquire and explore the Company’s portfolio of exploration projects and $2.2 million on the Soda Lake expansion. At March 31, 2010, Magma had cash and cash equivalents of $40.5 million, working capital of $31.7 million, and long-term debt with a fair value at quarter end of $51.0 million.

For the quarter ended March 31, 2010, HS Orka generated revenues of $14.17 million, gross profit of $4.46 million, net income from operations of $4.24 million, other income, net of other expenses, of $7.59 million, and income of $9.61 million, net of taxes of $2.21 million. EBITDA for the period was $5.72 million.

On an annualized basis, HS Orka’s revenues for the quarter represent a 14% increase over revenues earned in fiscal 2009. Approximately 46% of HS Orka’s revenues are sold under purchase power agreements with prices indexed to the price of aluminum, resulting in higher revenues as aluminum prices increase.

Soda Lake Operation: The Soda Lake operation produced as expected during the quarter with interruptions due to the Phase 1 expansion program, which is designed to boost production from 11 MW to 23 MW, and a half-day interruption on February 22 due to a fire that damaged one of the operation’s ten turbine units. Damage from the fire will be covered by insurance subject to a $500,000 deductable.

As part of the field optimization program, well 45A-33 was successfully connected to the plant in late April 2010 and commissioning is underway. This is the first new well that has been connected to the plant in over 17 years and represents one of the hottest pumped wells in the world with one of the industry’s deepest setting depths at over 2,000 feet. The new well, along with additional improvements resulting from recent plant refurbishments are expected to add several MW to the facility’s output and will increase Soda Lake’s revenues and profitability in the future. Current production at Soda Lake is 13.5 MW, up from 11 MW in the previous quarter. Deep well 41B-33, which was drilled in 2009, will be used as an injection well. Magma expects to confirm the remaining Soda Lake capacity increase to 23 MW after mid-year 2010. To date, $14 million has been expended of the original $18.2 million Phase 1 budget.

During the quarter, a Geothermal Reporting Code estimate was prepared for Soda Lake with GeothermEx acting as the Qualified Person. The recent field optimization study resulted in a comprehensive data set that was used for the reservoir estimate. Proved Reserves of 20 MW and Indicated Resources of 41 MW have now been established for the property. This compares with a previous P90 estimate of the geothermal reservoir’s gross generation capacity of 29 MW.

Exploration Activities: In January 2010, Magma was awarded an exploration permit for the 100,000 hectare Pellado property. Subsequent to the quarter end, Magma received a 50 MW exploitation permit for the 4,000 hectare Laguna de Maule property which adjoins the Pellado property. The exploitation permit will allow Magma to proceed directly to construction of a Phase 1 operating plant once a drilling program, infrastructure, permitting and other work have been completed. The two properties comprise the Mariposa Geothermal Resource (“Mariposa”) that is estimated to contain an Inferred Resource of 320 MW of electrical generation capacity, as defined by the Geothermal Reporting Code. Mariposa is located within 25 kilometers of two hydro power plants and associated transmission lines that are in development. Road construction for all-season access began in September 2009 and drilling of the first of four slim holes commenced in March 2010. The 2010 slim hole program, plus related work, is expected to be completed by December at a cost of $15 million.

During the quarter, Magma commenced a drilling program on the Desert Queen property in Nevada. To date, four temperature gradient holes have been drilled and the results are presently being evaluated. A drilling program on the McCoy property in Nevada is currently planned. In May, the Company added geothermal holdings to its Desert Queen and Granite Springs properties.

In Peru, Magma acquired the mining rights to the San Pedro and Crucero properties consisting of 1,600 hectares. Exploration programs on all of Magma’s Peruvian properties will commence upon the award of geothermal rights, which are pending. In April, Magma’s joint venture with Ram Power on two Nicaraguan concessions was terminated.

Mr. Beaty concluded, “Magma is rapidly building itself into a large global geothermal power company, with its active programs in Nevada, Chile and Iceland. We have an outstanding team of geothermal experts, a healthy balance sheet and an excellent property portfolio which should deliver continuing good results during the rest of 2010.”

Source: Company release via MarketWatch