Australian firms with large international footprint

Alexander Richter 7 Oct 2009

A recent article in Australia looks at the incredibly large international footprint of Australian geothermal firms.

According to the article, the Australian Stock Exchange (ASX) “has nine pure play geothermal energy developers and only four — Geodynamics, Geothermal Resources, Greenearth Energy and Torrens Energy — are focused on Australia.

The other five have overseas as well as local projects. Green Rock Energy is also in Hungary; KUTh Energy in Vanuatu, Fiji and Papua New Guinea; Hot Rock in Chile; Panax Geothermal in India, Kyrgyzstan and Slovakia; and Petrathem in the Canary Islands, mainland Spain and China.

That’s an impressive sweep of the world, but at this stage it’s more of an interesting toe-in-the-water exercise than a major assault.

Like their Australian ambitions, all of these projects are at an early stage of development.

There are two opposing schools of thought on international expansion.

One is the export-driven “Born Global” model; the other is the school of hard knocks experience that going international can be a quick way to corporate disaster or ruin.

Australia has some terrific international successes. We also have not just companies but whole sectors that have tried their hand overseas and are still wearing the scars.

Perhaps the most recent is the property trusts which only a few years ago expanded internationally by buying retail, office and industrial assets at boom time prices and have now returned home to make massive writedowns, sell at low prices, beg from shareholders, and count themselves lucky if they are still alive.

Before the property trust bust, the fledgling biofuels sector thought it could expand overseas.

It built expensive biodiesel plants and then got crushed by under-capitalisation and rising feedstock prices, among other profit killers. The sector is still in limbo.

Fortunately we also have big successes such as BHP Billiton in resources and Cochlear and ResMed in technology to show it can be done.

Where do the geothermals sit? At this stage investors should let them have a go, particularly as there are many pluses to their story.

Among the big pluses is that they are operating in proven geothermal zones, such as Hot Rock and KUTh in the Pacific Ocean’s Ring of Fire where accessing geothermal heat is much easier than drilling four kilometres under the Australian desert.

The overseas projects also give the companies experience with other forms of geothermal heat such as volcanic and hydrothermal techniques besides the hot rock approach common in Australia.

The projects are close to large markets and transmission infrastructure, as in Europe, or have an opportunity to replace carbon fuels in established markets, such as in the Pacific islands.

And so far they have not spent up big. Most are still exploring so expenditure is relatively low, and exploration or later project development often has the backing of a country’s government.

So the companies have time to try their hand and learn before they come to market asking for capital to move their projects to the next stage.

All of the companies are early stage and need their first development projects to be successful so they can generate cash. The more choice they have when making that decision the better. Location should not be the critical factor.

As long as the companies move in bite-size, achievable steps, their international projects are another option that might help them generate first revenue and move to profit.”

Source: The Australian, Business