Consolidation in Canada’s geothermal sector expected

Alexander Richter 28 Jan 2010

In an article on Vancouver, Canada based Sierra Geothermal Power Corp.s’s recent nasty proxy fight, it is said that “Canada’s geothermal power industry is headed for more consolidation…

The proxy battle ended Tuesday with two representatives of a dissident shareholders group getting seats on the board – far less than the majority takeover of the board that the “concerned shareholders” wanted.

But the compromise could result in the sale of Sierra or a merger with another geothermal firm, as the company says it will redouble its efforts to increase value for shareholders, through partnerships, a merger or an outright sale.

“The company is basically for sale,” said John McIlveen, research director at Jacob Securities Inc. in Toronto.

Sierra’s management had expressed concerns that the dissident shareholders, who have ties with Nevada-based Ram Power Corp., wanted a low-price sale to that company.

Ram, which last year bought up two other Canadian-based geothermal firms, may still end up with Sierra, but other options will also be explored. Sierra chief executive officer Gary Thompson said he would welcome a deal with RAM, but “we’re just not prepared to give the company away.”

Mr. Thompson said he expects to see large energy companies try to pick up assets.

The key advantage for larger companies is that they can more easily raise capital without diluting shareholders’ holdings, Mr. McIlveen said. Big firms such as Magma Energy Corp., also of Vancouver, and Ram are hefty enough to efficiently raise the money they need to explore for geothermal sites and build plants, he said.

There is still a role for some smaller firms, but probably not as public companies, he said. To get public markets interested “you have to create a growth story, [and] you have to have ‘done-it-before’ management,” Mr. McIlveen said.

While there are no geothermal power projects yet in Canada, the Toronto Stock Exchange and TSX Venture Exchange have emerged as the places to raise capital for companies planning power plants in Nevada, California and other geothermal hot spots. Geothermal plants use underground heat to generate electricity.

Alison Thompson, chairwoman of the Canadian Geothermal Energy Association, said Canada should remain the key source of financing because of our expertise in resource development. She said geothermal potential in North America “has barely been scratched” and there is room for companies of various sizes.

“If you look at mining and oil and gas, there seems to be room for everybody.”

Source: The Globe & Mail