Remember geothermal stocks? I was just thinking about doing some reconsidering of these once hot, now ice cold investments as a somewhat contrarian idea … and then this teaser dropped into my lap to urge me to look at one of them in particular.
The pitch is from the Angel Publishing folks, with the letter signed by Jeff Siegel as an ad for his Green Chip Stocks Premium letter (“on sale” for about $100) — and it’s all about a geothermal stock that he apparently picked for huge gains about four years ago. Here’s how the ad begins:
“It’s Cheaper than Coal …
“Cleaner than Natural Gas…
“And More Powerful than Nuclear
“It can provide 130,000 times our annual electricity consumption, and….
“The U.S. Government is betting on it to completely end our energy crisis once and for all.
“Now meet the only pure play Geothermal Developer that Uncle Sam is practically bankrolling to make it all happen.”
Sounds enticing, right?
Siegel then goes through a spiel about how smart he was to pick this stock the first time around — including the almost obligatory teaser pitch about how he was one of the few who was dedicated enough to actually get his boots on the ground and visit the site. Here’s how he puts it:
“It was about five years ago when I was escorted to the ghost town of Raft River, Idaho.
“Situated about three hours southeast of Boise, I took a meeting with the top brass of a company that would soon deliver one of my most profitable plays ever.
“It was a tiny geothermal company that had just sealed the deal to construct and operate the first-ever geothermal power plant in the state of Idaho.
“Now this may not seem like a big deal on the surface, but consider this…
“The new geothermal power plant was being built in a region that — according to the DOE — actually had enough geothermal capacity to power more than twice the number of all the single-family homes in the entire state of Idaho.
“And here’s the best part: They had an ironclad deal with Idaho Power Company to sell that power.
“It was a done deal, potentially worth about $140 million in annual revenue.
“Yet hardly anyone on Wall Street even knew this little company existed.
“Not that I was surprised… After all, not many over-fed, spoiled Wall Street analysts are willing to take an 8-hour flight to Boise and then drive three hours to no-man’s land to check out a bunch of geothermal wells.”
You can add me to the list of people who aren’t willing to fly to Boise to investigate a stock, by the way — and yes, I’m probably spoiled and certainly over-fed … I’m not even sure if I’d drive an hour to meet a public company, I usually find that I get plenty of spoon-fed lies in the press releases without suffering the inconvenience of meeting anyone face-to-face. But that’s just me.
Siegel tells us that he recommended the stock to his readers at around 80 cents a share, and that “about a year later” the stock hit $4.78. He doesn’t tell us that he suggested a sell of these shares at that point, by the way, just that hitting $4.78 delivered his readers a gain of 497%.
Then we get the specific promise that always puts a shine in the Gumshoe’s eyes …
“… this very same geothermal stock that delivered us a gain of nearly 500% back in 2006 is about make another huge run.
“And this time, you’ll have an opportunity to get a piece of the action — to the tune of a…
“413% Gain in 8 Months”
(He meant 2007, by the way — can’t fault him for a typo given my own tendency to make such flubs, but it wasn’t 2006.)
Apparently, when the stock cratered a while later Siegel urged folks to jump back in again — I can’t verify this, but here’s what he says in the ad:
“… after the market went into a tailspin a few years ago, that little geothermal stock that made us so much money took a massive nosedive. The stock got as low as $0.39.
“And it was around that time I pleaded with investors to once again buy this stock.
“You see, the first time we profited from this stock, the company still had no operational power plants, no revenue stream, and only two properties.
“But by 2009 — around the time the stock was trading at record lows –— the company had two operational power plants, a consistent revenue stream, and a third property in development.
“Those who listened to me and bought the stock again — when it was trading at just $0.39 a share — watched it soar to $1.68 in less than seven months.
“That’s a gain of more than 330%!”
So … that’s actually enough for us to name the stock for you, since, as fate would have it, Siegel actually promoted it pretty heavily in a teaser ad back in the Summer of 2007 and I wrote about it a few times, too — but before I open wide the curtains and reveal all, let’s see exactly why Siegel is pitching it this time around:
“About three years ago, the Department of Energy announced it was ponying up $6 million to test a new form of geothermal technology with this little geothermal company.
“The technology is called Enhanced Geothermal Systems (EGS) — and for the geothermal industry, it’s the holy grail.
“You see, with enhanced geothermal, you can set up a power plant almost anywhere in the country: the deserts of the Southwest, the wind-swept plains of the Midwest, and even within very short distances of every major city and load center in the nation….
“… our favorite little geothermal stock is in bed with the U.S. Government. Uncle Sam has already ponied up $10 million to back this company’s EGS research.
“Hell, the U.S. Government even pumped another $96.8 million into the company just so they could complete another geothermal power plant in Oregon — a power plant that could soon end up being worth more than $200 million in annual revenue.
“Today, this little geothermal outfit boasts two operational power plants, a consistent revenue stream, a third plant under construction — thanks to a very generous $96 million from Uncle Sam — and of course, that EGS project that could easily catapult this little geothermal company into major player status overnight.”
Siegel tells us that the catalyst he sees this year is that “in about six months” we should see results from the company’s EGS project, which he thinks will bring a “flood of new capital” into the company.
So who is it?
As I mentioned above, longtime Gumshoe readers may well remember this guy: it’s US Geothermal (HTM)
And yes, it did hit $4.78 after he had apparently recommended it at 80 cents (I’m taking him at his word for the 80 cents — when I first saw it teased by this same editor it was near two dollars in April of 2007, though that spike probably came from the newsletter and it was near 80 cents both before and after).
Geothermal was the “flavor of the month for a while in 2007 and 2008, with picks by many different newsletters getting attention and driving many of the geothermal stocks to crazy valuations (and bringing in lots of made-up terms, remember “slow volcano power” or the more recent “thermogenic oil?“), though most of the names that would have rolled off my tongue for geothermal stocks back in 2008 are gone.
Almost all of the junior geothermal stocks were rolled up into one of two investor-driven geothermal consolidators, Ram Power (RPG in Canada, RAMPF on the pinks) and Magma Energy — though Magma, which got a lot of attention because of its mining legend CEO, Ross Beaty, is also a cautionary tale: they’ve been public about their recent disappointment with the lack of opportunity in geothermal, and have made it clear that they’re likely to branch into other sectors to look for growth. That branching out has now been realized, with Magma Energy and Plutonic Power, which is mostly a “run of river” hydroelectric developer that has also been teased by Green Chip in the past, now merging into a new entity named Alterra Power (AXY in Canada, MGMXF on the pinks) with a broader mandate to build a diversified renewable energy portfolio.
And the other very heavily teased geothermal stock from the past, Raser Technologies, just filed for bankruptcy protection last month — with the fact that they failed to get a white knight to buy them out being a reflection of both their massive indebtedness and, perhaps, the lack of near-term profit from their low temperature geothermal projects.
So HTM is now one of just a couple decent-sized “pure plays” on geothermal that’s actually producing electricity — though “decent” is a very relative term, the stock has a market cap of less than $75 million so PLEASE BE CAREFUL, this stock is tiny enough to move abruptly based on Siegel’s tease, or even on this article by yours truly.
The stock, to finish our revisit of Siegel’s past claim, has only been above $4 for about a week in it’s entire history, and it never closed as high as $4.78, but that is actually the all-time intraday high from Halloween, 2007. I suppose it’s possible that one of his subscribers got in at 80 cents and out at $4.78, but unless they were extremely prescient it’s unlikely that many sold at even $4. And if he did really urge his readers to buy more during the credit crisis, good for him — that would have been a wise move in retrospect, though I probably wouldn’t have had the guts to do it.
Now? It is indeed under a dollar as Siegel teases, it’s back near 80 cents — 86 cents as I type this, and bouncing around at about the two-year low. It briefly fell far more (to 40 cents or so) during the Fall 2008 credit crash, when all financing-dependent junior stocks took a huge hit, and it was probably lower still before Siegel or I had ever heard of it when they were still trading over the counter, but other than that the 70-80 cent range — which is also roughly their reported book value — is about as low as the stock has been in four years. They’ve also raised plenty of money during that time, their share count is almost twice as high as it was back in early 2007 (about 77 million shares now, roughly 44 million four years ago).
Geothermal plants are very expensive to build, with all the exploratory and development drilling of wells and the construction and maintenance of the actual power generation plant, so it’s certainly nice that Siegel says they’re getting $100 million from Uncle Sam to help fund their projects — and, given their market cap of just about $70 million, it’s a good reminder of how financing dependent geothermal projects always are. That’s not necessarily a big deal for the huge geothermal producers, like Calpine (CPN) or Chevron (CVX), since they have so many other businesses, but it’s definitely a hurdle for startups like US Geothermal or Ram Power. The other company that’s worth looking at in this space is Ormat (ORA), which is an Israeli firm active in global geothermal development — they both build plants under contract and operate their own plants, and, though they always look pretty expensive relative to earnings, they have also been consistently profitable for almost a decade (that’s not to say they’re perfect — ORA is undergoing a transition to being more of an explorer and operator and doing less contract work, and one reason they’re near a five-year low is that they’ve hit operational problems at a major plant and profits have sagged).
HTM tells us that they have indeed gotten loan guarantee financing, and that they’re working with partners for additional financing for their plants that are under development — like all geothermal producers with the possible exception of Calpine, they are very dependent on renewable energy credits and mandates from the feds and from several “high potential” geothermal states out West (especially California, but the number of states with renewable standards is increasing). The CEO is quoted as saying that they expect their first full year of profitability in 2013.
So … now that most of the geothermal stocks are fairly beaten up, optimism for the sector is generally low, but renewable energy standards are still creating potential revenue pools in the future — do you want to buy geothermal stocks? It is certainly a contrarian play, and geothermal certainly has potential, but these companies have also proven over the years that they’re very capable of spending hundreds of millions of dollars and providing little to no return to shareholders. The fact that the stocks I keep an eye on are trading again at pretty close to book value intrigues me, but I haven’t convinced myself yet — if you’ve got an opinion on HTM, or on geothermal investment in general, feel free to let us know with a comment below.