Stock Gumshoe

In all the time I’ve put in as your friendly neighborhood Stock Gumshoe, I think this might be the most-forwarded email ad I’ve seen yet. People are clearly intrigued by this teaser for the “slow volcano power” company … either that, or it’s the Gumshoe’s smoldering, soulful and sensuous eyes that make everyone think “volcano!”

I’m guessing it’s the former.

The ad comes in for the new “Energy and Scarcity Investor” newsletter from Agora, edited by Byron King, who says he is an experienced geologist. Don’t know anything else about him, and of course he doesn’t have a track record yet with this newsletter … but he apparently has a 38 cent “volcano power” stock to share with us on November 20th if we’re willing to shell out $1495 for the first year.

Or, if you prefer to do your own research, stick around — we’ll figure out the name of that “slow volcano power” company, and probably a few of the others he teases, too. Just indulge the Gumshoe for a moment. And no, you don’t have to wait until November 20th for my answer. Some of you have seen a few of these stocks mentioned here before — a few people offered solutions in the comments on prior posts, or in the Gumshoe Forum.

So the basic premise, of course, is that “slow volcano power” is geothermal power. Probably all of us have at least heard the term — it’s using the heat of the earth’s core to generate electricity in some way. Mostly, they do this by drilling holes to find hot regions, injecting water or finding superheated ground water, using it to generate steam, and using the steam to turn turbines. That’s a gross simplification, of course, but that’s basically the way it works. Other companies drill for oil, geothermal power companies drill for heat and hot water.

I’m sure there are many challenges to this kind of power generation, otherwise the non-polluting and resource-light model would be in use everywhere. I don’t know all the details, but obviously one of the challenges is finding a place where you don’t have to drill that deep to hit the hot stuff, and a place close enough to civilization that you can efficiently transmit the electricity. Places where hot lava are reasonably close to the surface are also probably right along the edges of tectonic plates and in inhospitable mountains and perhaps subject to earthquakes and other complications. Just guessing on that part. It’s also true that, using well-established geothermal generation, you need a fairly high temperature and the presence of water nearby — though new technologies and techniques are expanding the capability to inject water instead of using existing hot groundwater, and lowering the minimum temperature.

The poster child for geothermal energy is Iceland — I’ve never been there, but I’ve heard tell of the massive heated lakes that are fed by the same kind of geothermal energy that provides most of their electricity. But clearly, not everywhere is like Iceland.

So what geothermal power company have they found for us here? And what do we know about it, other than the fact that it’s priced at about 38 cents?

Well, he first lets us know that he already recommended a “midcap” geothermal company — the biggest pure play in the space — to the readers of the Outstanding Investments newsletter. Just to throw a freebie in there for you, that’s got to be Ormat Technologies (ORA) — a company near $2 billion in market cap that runs its own geothermal plants and builds them for others (including some of the other, smaller companies that get teased later in the letter). That’s pretty much the only geothermal stock on a major exchange, unless you want to get into the power companies who have a small piece of geothermal in their businesses, and, being in that catbird’s seat, it looks awfully expensive at a trailing PE near 90.

But you’re not here to hear more about Ormat … they’re fairly high profile, and you can pretty easily find out everything you want about them.

What’s the little 38 cent one?

Our clues:

It’s 72 miles north of San Francisco — or at least, the “slow volcano” is.

It’s the only pure play on California’s stringent new renewable and non-polluting electricity generation requirements.

And that’s pretty much it.

Not enough for the Gumshoe, you say? Nonsense! says he … this little company is almost undoubtedly …

Western GeoPower (WGP in Canada, WGPWF on the pink sheets).

The “slow underground volcano” north of San Francisco is called the Geysers, and it’s the most active geothermal generation site in the US. By far, I imagine. This company has one plot there for their project, though they haven’t yet even built a plant and they’re at least a few years, on an optimistic construction timetable, from generating any electricity.

Thanks, no doubt, to the heavy volume of promotional emails on this one, the shares have already gone up a bit — to about .45 cents today, up from .38. Perhaps they didn’t really sequester that idea until November 20th after all. And I’ve seen articles about geothermal power investing in the mainstream financial press with some regularity of late, so pretty much everything attached to geothermal is going up.

I’ve actually written a little about this one before, though it was for a somewhat different teaser — that one was back in August.

And I’d point you to the Stock Gumshoe Forum, where this stock and some other geothermal names have been bandied about quite a bit. Interest among the Gumshoe faithful perked up after US Geothermal (which is the “Slow Volcano Dynamo #1″ supplemental pick from the teaser, with the 10.8 square miles of land in southern Idaho) shares took off to the top of the Gumshoe tracking spreadsheet. US Geothermal is quite a ways ahead of Western GeoPower in terms of actually getting their plant built, but they don’t have the advantage of being near a major city in California.

Finally, there are lots of interested investors in the geothermal space — there was an excellent article by Tom Konrad that went up on Seeking Alpha a few weeks ago that summarizes most of the key points about geothermal electricity generation, and what investors might want to consider before jumping in.

Other ones that were teased, just to throw in a couple quickies for those who are interested in geothermal power? The Latin American geothermal play is likely Polaris Geothermal (PGTHF), the one with 15 sites in Nevada is probably Sierra Geothermal (SRAGF), and the other Nevada one likely Nevada Geothermal Power (NGLPF).

The only other small geothermal company I’ve ever looked at is Raser Technologies (RZ) which is trying to license its technology for lower-temperature geothermal and buy up rights to sites that had previously been considered not efficient enough. And the other one that gets a lot of press is Calpine, which is coming out of bankruptcy probably later this year and runs most of the sites in the Geysers (they’ve estimated that shareholders might get up to $1.94/share when they get out of bankruptcy, which is more than the shares are trading for now, but the agreement is still in dispute by bondholders and there’s certainly no guarantee that common shareholders will get anything when they finish reorganizing and get a new ticker symbol. Investing in companies undergoing bankruptcy reorganization is extremely risky and is an easy way to lose all your money, in my opinion, but I might be interested in the “new” Calpine when they exit bankruptcy)

I’ve been a little interested, but don’t own any shares of any of these companies.

This one comes in from Greg Guenthner in an ad for the Bulletin Board Elite service, which, as you can imagine, aims to ferret out the few gems among the scams, unprofitable startups, dying companies, and shells that populate the otc and bulletin board stock listings.

I don’t know if he’s been successful at that so far (he says that he has, of course), but I do know that a reader sent this note to me … along with a solution to the teaser, so again we start a week with a solution that I didn’t even have to search out myself. Can you tell that it’s my birthday?

This one is all about alternative energy, as so many teasers are these days. The long spiel about how fossil fuels are still terrible pollutants, about how much political pressure there is to find alternatives, etc. etc. etc. Nothing new there.

And he goes on to say that this particular renewable resource is geothermal energy — which is, of course, completely clean. He cites the one huge success story in geothermal energy, which is the wee country of Iceland — you’ll see that come up whenever someone has a geothermal stock to sell you, since it’s the only country that manages to produce an appreciable amount of electricity geothermally. It’s also the only country that happens to be sitting in its entirety on a big ol vent in the earth that bubbles up nice hot water for them.

According to this adviser — and several others — geothermal energy is very important … “it could be an energy savior, even in parts of the U.S.”

And, as our adviser notes, “the Geysers field in Northern California happens to be the largest geothermal development in the world.”

So we certainly know that geothermal generation does work in the places where geology is lined up to support it. You don’t hear about many companies making much money from it, though … perhaps that’s about the change?

This argument is all about California:

“The rabidly green state of California is the perfect place for geothermal expansion. The state of California will require 20% of electricity sales to come from renewable resources by 2010. In 2006, 15% of all electricity used in California came from geothermal, wind, solar and small hydro.”

Right now, California is about 6% geothermal. Almost all of it comes from the Calpine properties in the established Geysers field, but apparently there are some other little players in there, too … and this teased company is one of them.

Then there was some chatter about “enhanced geothermal” operations, which essentially means bringing geothermal generation to non-volcanic areas by pumping water into the ground to find hot zones, then harvesting the steam for your generators. A lot more work than sitting on top of steam vents in the Geysers or Iceland and watching your turbine spin around, but, hey, it still doesn’t pollute (much), so I suppose it’s worth a try.

“While Calpine’s turnaround gains momentum, one tiny competitor is preparing for operations at the Geysers, as well as a second location on the West Coast. Unfortunately, I can’t divulge the name of this bulletin board gem in this forum. It’s just too small and too illiquid to reveal to a large audience.”

Well — you know the Gumshoe’s readers can’t just sit by and leave it at that, which is why the solution was sent to my by one of our intrepid searchers. There were a couple other clues if you want to take a stab at it yourself:

The company is working on two projects right now.

One of them is at the Geysers, a $100 million facility that should go online by 2010.

Says Greg, “you can get the name of this future force in power by subscribing to my new Bulletin Board investment service.”

Says the Gumshoe, thanks to a quick-thinking reader, this company is …

Western GeoPower (WGP up in Canada, WGPWF on the pinks)

I don’t know much about these guys or geothermal power in general, though I do know it’s a match for the teaser. Stockerblog posted a quick summary of the geothermal stocks out there over at SeekingAlpha a while back which is worth a read, and we sniffed out US Geothermal as the solution to a different teaser a few months ago. WGP has been on a bit of a climb lately, but hasn’t seen a huge lift from this particular newsletter as far as I can tell (unless they started pushing this one in the Winter, well before I saw it). The shares are around 30 cents right now, and a couple weeks back when I first saw the email they were just about at the same point. Not quite as big a recent winner as has been US Geothermal of late, but the companies are very different — established and producing field in the huge CA market for WGP, restarting an old test field in Idaho for UGTH.

My reader comments that Western GeoPower has one great project underway at the Geysers, but that the Myriad project in British Columbia, their other project mentioned in the teaser, is a bit of a stinker — lots of drilling, no good results yet. You might want to look into that yourself — I’d stay away from these little companies until you understand what it will take for them to become profitable, including how many years might pass in the interim, but certainly the technology is proven and folks are powering their toasters with geothermal energy in lots of places around the world right now. As always, enjoy doing your own research — and enjoy all that cash you didn’t have to throw Greg Guenther’s way if all you wanted was the name of the company.