Cleantech IPOs have been in short supply this year, despite the need of many startups for capital. But this week should bring at least one piece of encouraging news: Come Tuesday, geothermal energy producer Magma Energy, based in Vancouver, British Columbia, is expected to see its stock start trading on the Toronto Stock Exchange under the ticker MXY. The offering of 66.7 million shares will raise C$100 million ($86.1 million) for Magma. A PDF of the prospectus can be found here.
Geothermal energy relies on heat from molten rock, which can get as hot as 5,000 degrees Celsius, and comes relatively close to the Earth’s crust. Magma creates reservoirs of superheated water that can be tapped, extracted and used to power turbines that generate electricity. Geothermal plants have been in operation for 100 years and they are a reliable source of power; unlike wind and solar power, geothermal energy is constant. “A geothermal plant’s high capacity factor also enables it to produce roughly three to five times more power than a wind or solar project of a similar size,” the prospectus notes.
But Magma is going public with significant losses. In the nine months through March 31, 2009, it brought in $3.2 million in revenue, mostly from energy sales, but posted a net loss of $2.6 million. More recently, however, the losses have narrowed. In the first three months of 2009, the company took in revenue of $1.9 million and posted a loss of $683,000.
Operating costs are low once the geothermal plants are set up, but the catch is those initial construction costs can be daunting. Most of the money Magma is raising in the IPO will go toward identifying geothermal reservoirs, drilling production and injection wells and building the plants: $27 million will go toward exploring four potential projects in Nevada and Utah, and $57 million will help fund early-stage exploration in 14 other sites in Nevada Oregon, Chile, Argentina and Peru.
And the exploration stage is fraught with risks, from earthquakes that are common to areas where geothermal reservoirs are found to a host of other complications. Magma lists some:
[H]azards such as unusual or unexpected geologic formations, pressures, downhole conditions, mechanical failures, blowouts, cratering, localized ground subsidence, localized ground inflation, explosions, uncontrollable releases or flows of well fluids, pollution and other physical and environmental risks are inherent in geothermal exploration and production.
But interest in geothermal energy has been increasing, thanks in part to Google.org’s campaigning. Though Google is particularly interested in enhanced geothermal systems (EGS), which don’t rely on existing hot springs, but forces water into hot rocks wherever they are found. Magma’s prospectus mentions EGS as a next-generation approach that can yield 100 GW of U.S. energy capacity.
Despite its short operating history and significant losses, investors seem willing to trust that Magma will use its new capital to speed the company toward profitability. Whether that generous sentiment is spread to other potential cleantech IPOs, however, is less certain.