Tuesday, 15 March 2011

Hot rock power producer pounded

Courier Mail
Thursday 10/3/2011, Page: 55

GeoDynamics, Australia's biggest listed geothermal energy developer, will be ejected from the ASX 300 Index this month after hitting record lows and spearheading the losses that have plagued the sector. Shares in all the larger listed geothermal companies, including Brisbane based GeoDynamics and Panax Geothermal, and South Australia's Petratherm, are all at or close to record or 52 week lows.

Shares in GeoDynamics, which has the largest market capitalisation at $109 million, rallied in November after it said a 50 50 venture with Origin Energy to exploit shallow geothermal energy sources in South Australia's Cooper Basin was set to yield initial results before the end of June. Despite the effects of recent weather, the company still expects those initial results by June. But its shares have slid since February when its first-half net loss widened to $8.3 million from $5.5 million.

GeoDynamics' focus is its 70% owned project (Origin Energy owns the other 30%) in the Cooper Basin, which aims to tap heat in 4km deep granites to produce continuous, 24 hour power supply but without the greenhouse gas emissions and heavy water consumption of coal and gas fired power plants. The 50 50 venture targets heat at shallower depths and is less risky, so may bring geothermal power on line more quickly. But it could deliver only hundreds of MWs of power supply, while the deep venture has potential to produce thousands of MWs.

GeoDynamics, whose Jolokia 1 well is the hottest of its kind known in the world, is a global pioneer in hot fractured rock technology and a well blowout in 2009 delayed until 2013 a final investment decision on a 25 MW demonstration plant. Research firm Morningstar this week kept its "avoid" rating on GeoDynamics shares and urged clients to await more technological development progress before making any new investment in the stock. Morningstar cited concern over the company's rapid rate of cash outflow.

GeoDynamics recently secured a $90 million federal grant that underpins its operations up to the targeted commissioning of the 25 MW power plant in early 2015, Analysts also say the planned carbon price is likely to aid investment in Australia's gas producers but it will take other measures, such as national feed-in tariffs and more research and development support, to boost market support for renewable energy developers including geothermal and solar companies.

Investment research firm Bakers Group is more positive on the outlook for Panax Geothermal, recently rating its stock a "strong buy" but with high volatility likely. It said Panax Geothermal, unlike GeoDynamics, was focused on conventional geothermal technology for its projects in Australia, Indonesia and India. Bakers Group said because the technology was conventional, it was lower risk, and Panax Geothermal had several projects in advanced development stages. Panax Geothermal yesterday closed down 4% at 4.7¢. GeoDynamics was down 3% at 31.5¢.

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