Today we’re looking at a newsletter from Doug Casey’s stable, the first one of his teasers that I’ve looked at in quite a while.
The pitch is that Marin Katusa has picked 19 consecutive winning stocks for his Casey’s Energy Report, and that you can subscribe now to get in on pick number 20, which is apparently getting close to their buy price.
As they put it …
“Marin’s just getting started. Winner #20 is already on his radar, and chances are it’s going to deliver even higher returns than any of the other 19.”
Katusa apparently has a “three-tiered formula” that helps him make money for subscribers — the first tier is a network of energy insiders that he cultivates, the second tier is some kind of mathematical valuation/screening “system” that helps him target buy prices, and the third tier is his team of energy analysts, who he naturally believes are “the best and brightest.”
I have no idea whether or not those “tiers” really mean anything or are just a marketing ploy, but I would imagine that they’re probably not lying about the 19 winners (though they may not count or credit them the way you would) — notice that we weren’t told that he’s had 19 picks that beat the market, just 19 “winners,” which the little footnote indicates were all chosen in the last quarter of 2008 and the first eight months of 2009, so it’s possible that even picking 19 “winners” in a row could have your overall portfolio trailing the S&P 500. Not to throw cold water on the claim, I certainly haven’t ever picked 19 winners in a row, but we might also argue that every hot streak has to end at some point.
I didn’t receive the email ad for this one directly, I just got the link sent along to me recently, so I can’t tell you for sure when the ad started running — which means it’s possible that this “number 20” pick has already been made.
So, with those caveats, what is this stock that’s Marin Katusa’s possible 20th consecutive hot pick? You may or may not be delighted to hear that it’s a geothermal stock … a sector we’ve looked at many times in the last couple years, but which one?
“Winner #20 is a geothermal company. And geothermal energy is not only one of the most reliable alternative energies — it will be one of the most profitable, as President Obama continues to pump money into the green sector through subsidies.
“The man behind this company is a legend in the resource sector for his financial insight. It’s no wonder he’s been dubbed the ‘broken slot machine’ for his unrivaled ability to make shareholders money.”
OK, so that’s actually maybe enough for us to identify this stock … but we get a few more clues, let’s use ’em …
“Recently, winner #20 filed its IPO (initial public offering), and investors as well as industry insiders clamored to get a piece of the action.
“As often happens with IPOs, this frenzied buying quickly inflated and then deflated the stock price, which for now has returned to a more realistic level. During the imminent market decline, Marin believes all stocks will suffer a temporary setback, creating a tremendous buying opportunity.
“An opportunity to ‘back up the truck’ on this new hot stock at a significantly reduced price.”
And as every good copywriter knows, throwing in some quotes from well-respected news organizations makes your deal look more substantive, and quiets the voice in the readers head that says, “what if this is all just a scam?”
So yes, we get a few press quotes, too:
“‘Investors around the world are leaping on the initial public offering of [this] Canadian geothermal energy company, highlighting the soaring interest in the geothermal space and the superb track record of [the company’s] founder.’ -Reuters”
“[This geothermal stock] ‘is definitely one of the hottest deals of the year.’ -The National Post”
“Geothermal is one of the great answers to our energy crisis. Add the facts that:  you’re not exposed to commodity prices,  you’re not exposed to the dictators of the world, and  you’re not throwing away your domestic product to foreigners. It’s just a great, great business. -IBT Commodities”
“‘President Barack Obama’s American Recovery and Reinvestment Act provides tax credits for geothermal projects, and the American Clean Energy and Security Act is laden with more incentives for clean energy investment.’ -The Financial Post”
If you’ve been around these parts for a while you’re probably familiar with the concept of geothermal energy — drilling into hot zones, pumping in water, using that heated water to create steam that powers turbines and generate electricity, it’s been proven as a concept for years, at least in hot zones like Iceland and The Geysers in Northern California. Geothermal generation is certainly a lot more “green” than burning coal or natural gas, and provides baseload (“always on”) energy unlike sun-dependent solar or wind-dependent turbines, though it also comes with complications (not least that it can be expensive to drill and develop, and for best results you need a very hot area, and the process is pretty tough on the equipment), so I’ll spare you the rest of Katusa’s general argument in favor of geothermal energy.
This last bit, then reiterates the importance of the man behind the company:
“When asked about winner #20, ‘Vancouver’s mining maven’ had this to say:
“‘The object is to do the same thing we did [with my silver producer]: to build the biggest geothermal energy business in the world.’
“We have every confidence he will do it.
“Indeed, the long-term profit potential is staggering.
“That’s why Marin and the whole Casey team are on board with winner #20.”
So who is this elusive “number 20?”
Thinkolator sez: Magma Energy (MXY in Toronto, MGMXF on the pink sheets — click here for the free trend analysis, which isn’t currently very pretty)
This is the latest endeavor of Ross Beaty, that “mining maven” teased above who has indeed been called the “broken slot machine” for his record of past success (he sold Equinox to Hecla Mining 25 years ago, and more recently built Pan American Silver into the world’s largest silver producer). The quote above, about how he wants to build Magma into the biggest business of its kind in the world, is from an interview that he gave almost a year ago, before Magma went public.
And the company did have it’s Canadian IPO this Summer, a bit behind their original schedule, but they got a fair amount of attention and at the time it was the biggest Canadian IPO of the year — and Beaty apparently got what he wanted, in that interview he noted that he was hoping the IPO would value Magma at $300-400 million, and it’s now got a market cap of C$450 million. That makes them one of the bigger “junior” companies in the space, bigger than the small firms that have just one or two sites under development like U.S. Geothermal, but much smaller than Ormat or Calpine. Probably the closest competitor, in terms of market cap size and focus, is Ram Power (RPG in Toronto, RAMPF on the pink sheets — one of two geothermal stocks in an uptrend at the moment, according to MarketClub), which is a similarly new company in its current form, a rollup of Ram Power and the junior geothermal companies Polaris Geothermal and Western GeoPower, both of which have been teaser targets in recent years as well.
Magma is still very much an early stage company in terms of operations — they are buying into a big established geothermal project in Iceland (they own about 43% now and are investing in expansion, it’s primarily a site that generates power for aluminum smelting), and they own one operating geothermal site in Nevada (Soda Lake, which has been operating for close to 20 years and is at about 1/3 of its nameplate generation capacity). Their other projects are elsewhere in the Northwestern US, in Utah and Oregon as well as more sites in Nevada, and in South America, with concession applications in Peru and some early-stage projects that they own in Argentina and Chile. Aside from Soda Lake and Iceland, it’s all early stage exploration, or flow testing, or drilling and mapping that they’re doing right now. I have no idea how long it takes to get these projects off the ground, but it sounds like a lot of the work they’re doing, in addition to the few places where they’re actually doing exploratory drilling, is updating old seismic and survey data from these sites that is in some cases 20-30 years old. The company describes their pipeline as having 24 early stage projects and seven advanced stage exploration projects around the world, including several new exploration targets that they just acquired in a government auction earlier this year.
The way Magma reports its projects, they have 86 MW of reserves (75 from Iceland, 11 from Soda Lake — though from what I can tell Soda Lake is only 8MW right now) and over 600MW of “resources”, which is apparently the documented potential of their other projects. Of that 600 MW about half is Iceland (HS Orka is the site they have part ownership of), and the other half is split between one big discovery in Chile and a number of smaller Nevada and Utah properties. Another 20 or so early stage properties are not counted in the reserves or resources. According to the timeline they’re projecting, they will boost production to about 100 MW overall next year, and bump up slightly again in 2012 through expansions in Soda Lake and Iceland, then have production close to double in 2013 with two new Nevada plants online, and jump considerably in 2015 with several of their other projects joining the party, including most notably the large 140 MW Maule project in Chile. So that’s the five-year growth plan, and their goal is to be acquisitive and create a global company to consolidate global geothermal generation, so they may well buy up some other projects along the way.
Magma does not have any debt, and they’ve raised well over C$100 million recently (from the IPO, the over-allotment, and a subsequent private placement) and have another C$20 million in credit available, so they should be in fine shape financially, and ready to keep growing by investing in exploration and perhaps acquiring other companies and projects, but there seems little chance that they’ll be profitable anytime soon — which is perhaps why they funded the Iceland investment by selling new stock instead of using their IPO proceeds. They have already received some federal money for their Nevada projects, and it looks like part of their calculus certainly depends on federal “green energy” grants and similar funding, which is no surprise. You can see Magma’s most recently quarterly report press release here, which details their work so far this year and their financial position, and a December investor presentation that goes into some more detail on their projects here [pdf file].
I don’t have any particular insight into which geothermal stocks are the best bet, but it does seem that Magma might be the best “story” right now — having a charismatic and successful resource investor at the helm, lots of cash, and a nice big position in the most well-known geothermal resource in the world (Iceland) certainly helps. As I noted, the other company that has a somewhat similar profile is Ram Power, and smaller firms include US Geothermal (HTM in NY, GTH in Canada — this is the other one that MarketClub thinks is in an uptrend) and Nevada Geothermal (NGP in Canada, NGLPF on the pink sheets), both of which are currently generating electricity, and Sierra Geothermal (SRA in Canada, SRAGF on the pink sheets), which is more capital constrained and not yet producing, but apparently has some promising sites and permits and may be bought up by Ram Power (or so I’ve read in one place, at least). The biggest pure play I know of is Ormat (ORA), which is an Israeli company as well known for building geothermal plants for others as for operating them themselves, it’s fairly expensive, but profitable and much less volatile.
So there you have it — one more geothermal stock to throw on the pile, it may or may not work out as they hope but I’m quite certain that this is the pick teased by Casey’s Energy Report. If you’re more “hotted up” about this sector than I, I’m sure you’ll have some insight or information to share … that’s why the friendly little comment box is sitting below, just waiting for your input.
We do not currently have any reviews on hand for Casey’s Energy Report, so please click here if you can review it for us — we do have several reviews on hand for other Casey newsletters, including Marin Katusa’s entry-level Casey’s Energy Opportunities, which my readers currently have ranked as Casey’s best letter