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Marin Katusa Values Viable Technologies and Leadership
Source: Karen Roche of The Energy Report 11/4/10
The Energy Report http://www.theenergyreport.com/pub/na/7782
Casey Energy Opportunities Senior Editor Marin Katusa shares his perspectives and predictions on the direction in which the energy sector is headed-from popular green alternatives like geothermal, run-of-river hydro and natural gas to the oil sector all the way to the less-popular, but very viable, uranium sector. The Energy Report caught up with Marin at the New Orleans Investment Conference for this exclusive interview.
Casey Energy Opportunities The Energy Report caught up with Marin at the New Orleans Investment Conference for this exclusive interview.
The Energy Report: Marin, one of the things you mentioned here at the New Orleans Investment Conference and at the Casey Conference is that the current focus on gold means a lot less attention for the energy sector. Can you talk about the overlooked energy stocks you have found?
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Marin Katusa: Let's start with the geothermal sector. Two years ago, geothermal was the buzz and hot sector in the junior resource sector. Today, nobody's talking about it. That's beautiful and fine by us because now these companies have developed projects and explored at a much lower cost of capital for present investors. But the investors got bored and sold the stocks. Now these companies are 50% cheaper than they were 16-18 months ago, but they have so much more value today than they did 18 months ago.
TER: What's unique about the geothermal?
MK: Of all the green energies, geothermal is by far the most economic. It makes sense. It works without government subsidies. But, when you include the government subsidies, it's like taking candy from a baby (or from Obama, not sure which is easier). The government's providing the construction loan guarantees and refinancing the projects at around 4% debt versus a year ago when companies were doing it at +14%. That's a big difference on the bottom line for cash flow. You can cheaply buy geothermal companies that actually have positive cash flow. I think it's the cheapest sector today-period.
TER: One of the downsides of geothermal is it's a relatively small sector. There aren't a lot of players in it. What will really take it to the next level?
MK: That's actually the upside. Because there are so few players and it is so front-CAPEX extensive, consolidation will have to happen to create the size. The key number to get the attention of a big firm, such as MidAmerican Energy Holdings Co. (NASDAQ:MDPWM; OTCBB:MDPWM), which is Warren Buffet's energy company, is 500 megawatts (MW) of production. Whether it's Ram Power Corp. (TSX:RPG) taking over Nevada Geothermal Power (TSX.V:NGP), Nevada Geothermal taking over Ram, Nevada taking over Magma Energy Corp. (TSX:MXY), Magma taking over Nevada or a merger between Ram and Magma-there's going to be consolidation. But the question of who will be the consolidator is still up in the air.
You want to be in the company that's going to have the largest upside. We put Nevada Geothermal, Ram and Magma as buys because they're run by excellent people. They're undervalued compared to a year ago. In January, Nevada Geothermal was over $1. We recently wrote about it trading in the $0.50 range. Now the company's refinanced its debt and had a recent equity financing in which very smart money like Rick Rule participated in (as did we). It's producing close to 50 MW now and will be growing production in the very near future; and, better yet, Ormat Technologies Inc. (NYSE:ORA) just bucked up some big money to farm into one of its other projects. A year and a half ago, it wasn't producing; so it's so much cheaper today and is a much better company.
TER: We've seen some consolidation. Over a year ago, you had Ram and Magma. . .
MK: Ram was created when Polaris Geothermal and Sierra Geothermal Power Corp. merged with Hezy Ram's private company. Magma is purchasing a lot of the Iceland production and it purchased Soda Lake in Nevada. Consolidation is going to continue.
TER: Why haven't these consolidator plays seen any market appreciation since the IPOs?
