Geothermal and waste heat harvest equipment maker and electricity generator Ormat issued a short earnings preview this morning stating that revenue was up year over year from $72M to $73M. Net profit however dropped from $87M to $47M; however, the prior comparison period had a one-time capital gain of $47M reported. Excluding this gain, profit increased from $40M to $47M year over year.

Polaris Geothermal, who recently announced a successful well test on their Nicaraguan concession, has recently announced a debt funding round of $27M in exchange for 27,000 units. A unit will consist of $1,000 in 9.5% senior debt, 667 warrants, and 75 penalty rights. The debt is due in 18 months time and will be paid quarterly in arrears. Jacob & Company, the underwriters of the deal, stand to benefit $1.89M for their fee and an option to acquire 7% of the offering.

The proceeds from this funding round will be used to retire $8.3M in debt due and the balance will be used for general corporate purposes according to the company. This debt round comes on the heels of a prior $32M private placement completed in July, 2007.

Here’s the core question: Is Raser a legitimate geothermal developer or a company chasing the latest hot trend pumping out news to prop up valuation?

There has been some spirited discussion inside our shop about which is the “real” Raser, and as a team, we’ve really taken a “wait and see” attitude. One side of the argument goes: this is a company that has entered the geothermal developer space with both feet. The company has acquired development rights on nearly 12,000 acres, has now inked a PPA for 21MW, has secured funding for 155MW of construction, has drilled a well and hit resource, and has secured a deal with a supplier for the harvest technology needed to convert geothermal resource into electricity. If that’s not the profile of a “real” geothermal developer, then what is?

The other argument centers around the fundamentals. The company’s cumulative revenue is under $1M and its cumulative loss is now over $50M. Yet, it maintains a market capitalization of nearly $400M! The first Raser business centered around electric motors and was branded Symetron and targeted for use in the automotive industry. Despite a few agreements, the business has failed to materialize. Thus, a strategy switch to geothermal developer with an initial false start where a definitive agreement to purchase a geothermal company was terminated at the target’s request. Now, the company has charted a course to fund the geothermal development with heavy debt and dilutive equity agreements. The facts are stark: The company has under $6M in cash and near-term liabilities due this year over over $34M according to its own financial filings. In fact, in those filings, the company’s independent auditor questions the company’s ability to carry on operations.

There are the two arguments, there is validity in both positions we believe, but recent developments show the company is serious about geothermal development even if the financial underpinnings are very precarious. One way or another, 2008 is the year that should answer the question definitively.

Yesterday Canada’s Financial Post authored an interesting article about the nascent geothermal industry and how the stocks of several of the publicly traded North American companies are appreciating. It’s true investors are late to the party in this segment; geothermal has none of the sexiness of a solar or wind play (we maintain this is so because it’s difficult for an amateur to look at the earth and say “bet there’s some steam here, let’s build a plant.” Unlike solar or wind where most people can notice the natural resource “hey, it’s real sunny here” or “hey, it’s real windy here”…)

We like to think of geothermal as being the deep thinker’s renewable (pun intended.) The resource is most often hidden, it requires an understanding of basic thermodynamics, and it has the best yield in megawatt hours of all the renewables. (OK, we’ll listen to arguments about gravity hydro which is also quite good.) Here’s a quote from the article:

Sierra Geothermal, Nevada Geothermal Power Inc. (NGP/TSX-V), and Western GeoPower Corp. (WGP/TSX-V) are listed on the TSX Venture Exchange. Polaris Geothermal (GEO/TSX) and U.S. Geothermal Inc. (GTH/TSX) are listed on the main Toronto Stock Exchange.

The largest geothermal company in the world is Or-mat Technologies Inc., (ORA/ NYSE) with a market cap of almost US$2-billion. The seventh North American geothermal company is Raser Technologies Inc. (RZ/PCX), which trades on the ArcaEx.

This enumeration of companies is interesting, but there are some pretty major gaps in this analysis starting with the omission of the largest geothermal operator on the planet, Chevron with nearly 2,000 MWe of production power, mostly in Indonesia and the Philippines (and it sports a market cap of $184B.) Also, there is the omission of large private developer/operators like Caithness/ARCLight who have as large, if not a larger geothermal portfolio as Ormat (~370MWe) – Coso alone for Caithness/ARCLight is a set of 260MWe facilities.

That nitpicking aside, the tone of the article is encouraging and this kind of press can only help in getting the message out that geothermal is a large part of the solution in our march toward energy security and independence.

Neal Hot Springs in Eastern Oregon, a potential resource uncovered by Chevron in 1979, is now in play. US Geothermal recently announced plans for a full-scale test drilling program that includes plans for a 1,000m (~3,500f) hole to determine the extent of the resource in the area. Geothermometer temperatures are predicted around the 150C (~310F) range.

US Geothermal has taken the Raft River project from prior exploration to commercial operation previously.