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Eco Investor October 2009
Editorial
Geothermals Have Global Ambitions
By Victor
Bivell
For companies
that have yet to make a dollar, Australia's listed geothermal stocks have
a surprisingly large international footprint.
The ASX has
nine pure play geothermal energy developers and only four: Geodynamics,
Geothermal Resources, Greenearth Energy and Torrens Energy are focused
on Australia.
The other five
have overseas as well as local projects. Green Rock Energy is also in
Hungary, KUTh Energy in Vanuatu, Fiji and Papua New Guinea, Hot Rock in
Chile, Panax Geothermal in India, Kyrgyzstan and Slovakia, and Petrathem
in the Canary Islands, mainland Spain and China.
That's an impressive
sweep of the world, but at this stage it's more of an interesting toe-in-the-water
exercise than a major assault. Like their Australian ambitions, all of
these projects are at an early stage of development.
There are two
opposing schools of thought on international expansion. One is the export
driven "Born Global" model, the other is the school of hard
knocks experience that going international can be a quick way to corporate
disaster or ruin.
Australia has
some terrific international successes, but we also have not just companies
but whole sectors that have tried their hand overseas and are still wearing
the scars.
Perhaps the
most recent is the property trusts which only a few years ago expanded
internationally by buying retail, office and industrial assets at boom
time prices and
have now returned home to make massive writedowns, sell at low prices,
beg from shareholders, and count themselves lucky if they are still alive.
Before the
property trust bust, the fledgling biofuels sector thought it could expand
overseas. It built expensive biodiesel plants and then got crushed by
under-capitalization and rising feedstock prices, among other profit killers.
The sector is still in limbo.
Fortunately
we also have big successes such as BHP Billiton in resources and Cochlear
and ResMed in technology to show it can be done.
Where do the
geothermals sit? At this stage investors should let them have a go, particularly
as there are many pluses to their story.
Among the big
pluses is that they are operating in proven geothermal zones, such as
Hot Rock and KUTh in the Pacific Ocean's Ring of Fire where accessing
geothermal heat is much easier than drilling four kilometres under the
Australian desert.
The overseas
projects also give the companies experience with other forms of geothermal
heat such as volcanic and hydrothermal techniques beside the hot rock
approach common in Australia.
The projects
are close to large markets and transmission infrastructure, as in Europe,
or have an opportunity to replace carbon fuels in established markets,
such as in the Pacific islands.
Some of the
companies have partnered with resident overseas geothermal companies and
so have local entre and can tap their experience.
And so far
they have not spent up big. Most are still exploring so expenditure is
relatively low, and exploration or later project development often has
the backing of a country's government.
So the companies
have time to try their hand and learn before they come to market asking
for capital to move their projects to the next stage.
All of the
companies are early stage and need their first development project to
be successful so it can generate cash. The more choice they have when
making that decision the better. Location should not be the critical factor.
As long as
the companies move in bite-size, achievable steps, their international
projects are another option that may help them generate first revenue
and move to profit.
This
article also appeared in The
Business Australian
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