Sierra Geothermal Power expects to announce a merger soon

Coil rig at Alum project site in Nevada (source: Sierra Geothermal Power)

Alexander Richter 10 May 2010

“Sierra Geothermal Power Corp, which is hunting for a suitor or partner, will most likely announce a merger with another small geothermal company later this month, its chief executive said on Monday”, in an article in the Canadian press.

According to the news, “The Canadian developer of clean, renewable energy from naturally occurring steam and hot water trapped deep in the earth hopes this first step in bulking up will help make it easier to raise the capital it needs to advance its projects.

“Our view is basically a merger is probably the most likely outcome of this,” Sierra Chief Executive Gary Thompson said.

“If there was an outright purchase I think that would have been made in the market already. … (A merger) is a coming together of like companies. I think you are talking of some type of a share exchange,” Thompson told Reuters in an interview.

Sierra, one of a handful of geothermal developers on the TSX Venture Exchange, basically put itself up for sale in January after a bitter proxy battle failed but resulted in two dissident shareholders getting seats on the board of the C$26 million ($25 million) Vancouver-based company.

The shareholders, who have links to private Nevada-based geothermal developer Ram Power Corp, had tried to convince shareholders of a low-priced sale of Sierra to Ram.

Sierra’s market capitalization rose by almost 400 percent last year, resulting in the TSX Venture Exchange naming it as one of its 50 rising stars. But its fortunes have reversed somewhat this year and its stock lost 37 percent as it and other small cap geothermals have had a hard time raising enough capital.

Geothermal energy projects need a lot of money upfront for high-risk exploration and drilling to estimate the size of the resource deep inside the earth’s crust.

The steam and hot water found is piped up to the surface and used to drive turbines to generate electricity. A well-known geothermal system is the geysers in California.

Geothermal energy projects are more costly upfront to develop than other green energy like wind and solar and financiers are hence more wary.

“We see this (possible merger) as a stepping stone in getting this company larger and getting access to the amount of capital that we need. It’s not that we can’t raise money … it’s just the amount of capital that we need is much greater than what we can do on our own,” Thompson said.

“If you look at all the junior geothermal companies, they are all basically in a similar boat in that they are all undercapitalized,” he said.

For much the same reasons, four geothermal companies — Polaris Geothermal Inc, Western GeoPower Corp, GTO Resources Inc and Ram Power — last July agreed to join forces. The largest geothermal company listed in Toronto is Magma Energy Corp MXY.TO, a C$365 million company run by mining entrepreneur Ross Beaty.

Sierra is developing four geothermal projects in Nevada, and has another 13 properties in its development pipeline. Drilling results from two projects, Alum and Silver Peak, are expected soon.

Thompson said he expects a shortlist of companies interested in tying up with Sierra to be decided on by the company’s special committee around May 19.

“We’re hoping to towards the end of May timeframe to have something to present to the shareholders,” he said.

Sierra’s stock was unchanged at 19.5 Canadian cents on the TSX Venture Exchange on Monday afternoon.”

Source: Calgary Herald