Investment guru Adrian Day likes “green” energy but doesn’t see many ways to make money in that space, save two. In this “Coles Notes” interview with The Energy Report, Adrian gives us his favorite juniors in the geothermal sector and even offers a few of the base metals juniors that he owns.
The Energy Report: Could you give us an overview of the alternative energy market?
Adrian Day: We all know the story of why green energy is attractive. We all know the story about oil, the risks and buying it from unstable foreign countries. . .how dirty coal is, and so on. So, we all know the potential advantages of what we might call “green” or “alternative” energy.
The big problem for me, being a realist, is that most of them don’t make money. Wind, solar and biomass are really just marginal additions to energy. At least for the foreseeable future, they’re marginal in the overall picture, and they’re also uneconomic. The only reason they make money is because the government gives them ridiculously outrageous grants.
TER: But of these different sectors of alternative energy—wind, solar and geothermal—you seem to hold a preference for geothermal energy.
AD: The beauty of geothermal is that it is green, renewable and has a very, very low environmental footprint. . .and it actually makes money. Now, the two that I like—Ram Power Corp. (TSX:RPG) and Magma Energy Corp. (TSX:MXY)—are both small companies, but they are the largest of the juniors. That’s really important; in the geothermal space, you really have to have scale to grow. In very simplistic terms—and you know I am a simplistic person—the big difference between say the metals industry, or gold exploration, and geothermal is that a lot of your costs come right up front in the initial stages of exploration. And so, the costs are pretty heavy at the early stage of exploration; but, once the thing’s in production, the capital costs, and, in particular, the operating costs, tend to be very, very low indeed. The point I’m making, however, is that you need scale in order to get to first base.
These two companies are both large enough and have good enough balance sheets that they are able to do the adequate exploration; and, of course, once you’ve done the exploration in the U.S., you can get some grants back from the government to help reduce your costs. Both of them have strong entrepreneurial management; both of them are growing. Just in the last couple of weeks, Magma has taken over the half of Iceland’s big Orka Project that it didn’t own—but it now has taken effective control: 98 %.
And Ram has just made an all-stock offer for a small geothermal company called Sierra Geothermal Power Corp. (TSX.V:SRA), and that’s a perfect illustration of what I was saying. Sierra has a very good pipeline of about 14 projects in the U.S., a very good pipeline, but it just didn’t have the capital to explore them and without the capital to explore them, they couldn’t get grants from the government. It was really just stuck; it couldn’t move forward. So Ram has a wonderful deal by buying these things very, very cheaply, and it has the capital to pursue them. So, yes, I like those two very much, and they’re both at very good buying prices right now.
……read more HERE