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Interview looks at if geothermal stocks will bounce off their 52-week lows

ThermaSource drilling rig on project site at San Jacinto, Nicaragua (source: Ram Power)
Alexander Richter 22 Aug 2011

In a recent interview, John McIlveen of Jacob Securities looks at the stock market for renewables, his views on geothermal stocks, the need for geographic diversification vs. technology and the key fundamentals for investors looking at the industry.

The last few months have been quite horrible for many geothermal companies listed on the stock markets in Canada, the U.S. and Australia. But fair enough the same can be said about companies from all industries.

So while most companies have reached a 52 week low, there is hope. The announcement of the Australian government for a carbon tax, had the geothermal stocks gaining some lost value. A recent interview with John McIlveen of Jacob Securities in Toronto, Canada, actually sheds some lights on the position of an investment bank on the current position.

He refers to the short term positions people had taken right after the events in Japan this spring, saying that this only created a short-term effect, while the industry needs investors taking “long-term positions”. He then also refers to the need of success stories among the more junior renewables, such as geothermal. He said, “We have had too many dropped balls on execution, projects over budget or past their timelines or not delivering the amount of power as advertised. And we need more consistent government policy. Policy keeps changing and money hates uncertainty. Rather than these expiry dates or constantly changing tariff rates, we need a policy that can stay consistent for a long period.”

It is also clearly good to see him make the case for geothermal, that he still sees as his “farourite source of energy from an investor point of view”. Regarding the relevance of oil prices for renewable development, John refers to countries that are depending on oil-fired power, mentioning countries in the Caribbean or Latin America. These countries are looking to replace expensive oil-fueled power generation, considering any renewable power source below $200/ MWh.

John also touches upon the need for diversification, quoting that one would want to “be diversified by geography as opposed to technology”. Particularly weather can have a large impact, e.g. on wind, run-of-river and solar projects, something we raised here before when it comes to the quality of resources vs. the political climate.

The interview then goes into the question of what makes geothermal companies attractive for investors. While primarily it is the question on what kind of return is offered, they are looking at the generation of cash flow. If there is a lack, then how can the company compensate. Another issue – and this is clearly sensitive – for geothermal companies do they have “enough cash flow that it can absorb the drilling of a dry hole without having to raise equity.”

John then also refers to companies he has an eye on, namely Ormat Technologies listed on the NY stock exchange, Ram Power and as well U.S. Geothermal both listed on the TSX. He also comments on the status of Alterra Power Corp.

To read the full interview, see link below.

Source: Oakshire Financial