VANCOUVER — Investor interest is heating up in the geothermal energy space as Magma Energy Corp., headed by mining entrepreneur Ross Beaty, gets set to go public in the coming weeks.
The Vancouver-based company is now working on pricing its initial public offering later this month, which analysts expect to be between $1.25 to $1.75 per share, raising at least $50 million.
That could bring the young company’s market capitalization to about $295 million, says analyst Carolina Vargas of Clarus Securities Inc.
Some analysts predict those numbers to go higher as the geothermal industry gathers steam thanks to the loosening of credit markets and a stimulus package in the U.S. that is geared to the sector.
“The U.S. has announced so many attractive incentive programs, people are almost rushing to get in,” said John McIlveen, research director at Jacob & Company Securities Inc. and a director at the Canadian Geothermal Energy Association (CanGEA)
The Obama administration recently set aside $350 million to support the growth of the geothermal industry in the U.S., where Magma has its flagship Soda Lake operations in Nevada.
Geothermal energy comes from thermal energy stored in the earth. The heat, which can reach up to 4,200 degrees Celsius, can appear in the form of volcanoes, hot springs and geysers. That heat is brought closer to the surface through the deep circulation of groundwater, which is forced to the surface as steam or hot water and used as energy.
Geothermal energy is considered renewable only if the rate of extraction of steam is slower than the rate of heat recovery of the resource.
The best geothermal resources come from a geographic region known as the “Ring of Fire,” which is areas around Pacific Ocean, such as British Columbia and Oregon, where a high level of tectonic activity occurs.
The world’s first geothermal power plant at Larderello, Italy was commissioned in 1913 and is still producing, while The Geysers facility in California has been in production since the early 1960s.
CanGEA says there is at least 5,000 MW of hydrothermal potential in B.C., Alberta and the Yukon. There is also estimated 14,000 MW of known reserves in the U.S.
Magma currently owns the Soda Lake operating geothermal plant, which has about 23 megawatts of capacity. It is operating at about one-third that rate today, but the company has plans to double that production this year.
Magma also has 19 exploration properties in Argentina, Chile, Nicaragua, Peru, and the western U.S., with an asset portfolio said to total 199 MW of capacity.
Magma will be a junior player in the field when compared to giant such as industry leader Nevada-based Ormat Technologies Inc. (NYSE:ORA), which has built more than 1,200 MW of power plants, and even Idaho-based U.S. Geothermal (TSX:GTH).
Vargas of Clarus Securities said the pending Magma public offering shows U.S. Geothermal is “undervalued.”
“We expect Magma’s IPO to provide additional support for our thesis regarding GTH (U.S. Geothermal). Both companies have proven land resources and management teams with strong track records,” she wrote in a recent note to clients.
U.S. Geothermal, which has fewer exploration properties than Magma, has seen its stock quadruple from 46 cents on the TSX in December to more than $2.
Last month, the company said it expects to receive a US$85 million loan from the U.S. Department of Energy for a project in Oregon as part of the government’s stimulus spending program.
Vargas said Magma has a pre-IPO market capitalization of about $204 million based on 163 million shares outstanding at an estimated price of $1.25 per share. She also said the company has $11.6 million in cash and no debt.
Magma, which Beaty started in January 2008, has been busy expanding and raising cash for its expansion, not to mention the pending IPO.
In the past 14 months, the company has bought 21 properties with more than 200 hectares of geothermal rights in five countries at various stages of exploration.
Recent deals include buying the Glass Buttes project in Oregon, the Whitehorse property in Nevada, additional land near its Soda Lake operation in Nevada, and additional concession applications in Chile.
Earlier this year the company also raised nearly $29 million through an equity offering.
Going public will “provide liquidity for our shareholders and to enhance our financing and growth opportunities,” Beaty said in a recent letter to shareholders.
The public offering was reportedly set for last fall, but the meltdown on the markets amid the global recession put off those plans, until now.
For Beaty, the geothermal business is yet another step in his career built on mining the earth for value.
The Vancouver-born geologist has more than 37 years of experience in the mineral exploration, including founding Pan American Silver Corp. (TSX:PAA), where he serves as chairman.
Since 1985, Beaty founded other public mineral resource companies including Northern Peru Copper, which was sold to a Chinese mining firm, and Global Copper Corp., which he sold last year to Teck Resources Ltd. (TSX:TCK.B).
Those were two of four companies spun off from Beaty’s firm Lumina Copper — sales he made just as copper prices hit record highs.