Vancouver’s Magma Energy, founded by mining impresario Ross Beaty in 2008, hasn’t had much time to fall from grace, but the situation concerning their controversial HS Orka property in Iceland may have contributed to the company’s market cap being nearly halved, from a high of nearly $2 in 2009 to bottoming out at $1.10 this past July. Pop singer Bjork, who is the largest celebrity in Iceland, recently presented Icelandic prime minister Johanna Sigurdardottir with a petition protesting foreign investment into Iceland’s natural resource sector.
Shares of Magma, meanwhile, have shown signs of recovery. Perhaps investors are choosing to focus less on the high publicity war of words and more on the Magma’s growing portfolio of geothermal properties in The US and Latin America. Cantech Letter’s Nick Waddell talked to Ross Beaty.
Ross, Your success in traditional mining and exploration is well documented. What was the appeal of geothermal? Was it the excitement of the new challenge or did you feel there was domain expertise you could call on?
I started Magma Energy because I wanted to build a clean and renewable energy company. Geothermal power is both one of the cleanest and most reliable sources of cost-effective electricity, and it can play a significant part in our energy future. Geothermal development is similar to mineral development in that both involved long term exploration, feasibility, permitting, financing and construction phases before operation can begin, both exist in similar geological environments and both require a great deal of up-front capital.
To launch Magma you had a bit of a two-pronged approach, you began to acquire leases on land positions, but you also bought a producing operation at Soda Lake and the HS Orka operation in Iceland. Is this strategy one that Magma will continue?
At Magma Energy we believe that being involved in geothermal power’s full development cycle, from exploration through development to production, is a source of competitive advantage. Our asset pipeline is well-balanced, our capital requirements can utilize internal and partnership resources, our shareholders get development returns and utility cash flow stability, and we can draw on our team’s highly specialized skills at all stages of the asset development cycle.
Magma has been in the news lately in Iceland because some people there believe all its resources should be domestically owned. Corporately, it really seem you didn’t get your back up about this, and have taken a kind of patient approach. What hasn’t been widely reported is that Magma has repeatedly said you are willing to sell a stake back to the Iceland people or even shorten the period of your lease? Do you think you can work through the politicization of this issue and come to a reasonable conclusion?
Iceland is a wonderful country and a vibrant democracy that has seen a great deal of economic turmoil & trouble over the last few years, and it’s understandable that some people are very concerned about foreign participation in their economy. Magma plans to be part of Iceland’s future as an employer and good corporate citizen, and we continue to remain open to discussions with the Icelandic government on all important issues. I can’t speak to why some viewpoints get more media attention than others, except to note that perhaps our calm approach to the issue you note wasn’t very exciting to read about. At this point the government has indicated they will not be pursuing nationalization, and we are well-advanced in our negotiations with a group of Icelandic pension funds to sell them a minority shareholding in our subsidary there.
Just how large is the geothermal energy space? How large do you see it becoming?
At this point geothermal power is quite modest in size, relative to both traditional energy industries and even to some of the other cleantech solutions such as solar & wind. And while there is extensive global experience with geothermal power solutions, including in places such as Germany, Italy, South America, South-East Asia, and the United States, only in Iceland and New Zealand are geothermal plants providing a notable share of local electricity. For scaling purposes, while there are large private players and divisions of larger energy concerns active in the industry, the total market capitalization for traded North American geothermal companies doesn’t add up to one large cap company. But the global experience with geothermal power, the limited options for other clean baseload power generation and the cost-effectiveness of our industry’s technology leads me to believe that geothermal power can grow many multiples in size from it’s current state.
Google’s philanthropic arm, Google.org just invested into the development of enhanced geothermal systems. Where do you feel the geothermal industry is at in terms of the development of new technologies?
With geothermal power being such a small industry, it has to date had very limited resources for R&D when compared to other energy industries such as oil & gas, nuclear and even solar and wind. Yet because it is a very knowledge-intensive technology, it stands to reason that geothermal power could see enormous productivity gains as R&D is expanded. This sense of being at the threshold of both the industry’s expansion and productivity improvement is one of the reasons I’m excited about Magma Energy.
Having had a lot of success in mining and metals, where price fluctuations and political circumstances can change the environment quickly, you clearly know the importance of timing. Why did you think this was the time for you to get involved in geothermal?
The geothermal power industry is still much smaller than it’s potential, so getting involved at an early stage of the industry’s growth was attractive, particularly as the emphasis in society grows upon clean energy solutions for future power needs.