Raser Technologies Inc. (RZ:NYSE)
Raser Technologies is a geothermal power development and technology licensing company. The company has a Market Cap of $ 93.5M
The Company operates in two business segments:
1) Raser’s Power Systems segment is seeking to develop clean, renewable geothermal electric power plants and bottom-cycling operations, incorporating licensed heat transfer technology. Raser has accumulated a portfolio of geothermal interests in four western continental states and a geothermal concession in Indonesia. It has initiated the development of eight geothermal projects in its Power Systems segment, as of December 31, 2008. Raser commissioned its first geothermal power plant in April of this year. That plant, located in southern Utah, now delivers clean, renewable energy to Anaheim, California. The Company has plans to build additional plants in Utah, New Mexico, Nevada and
Raser's model is to focus on previously known, relatively low temperature geothermal resources which had previously been passed over because they had historically been to cool to develop for electric power. Exploration risks have historically prevented much geothermal power production. By using known geothermal resources, Raser completely avoids the risk and expense involved in exploration. There is also little technology risk, since the modular PureCycle turbines produced by United Technologies Corp are only slightly modified from a decades old production chiller from the same company. Assembly-line manufacture of the turbines also speeds deployment. The twelve to 18 months within which they expect to be able to develop projects is half that of the industry standard 2-3 years.
2) Raser’s Transportation and Industrial segment focuses on extended-range plug-in-hybrid vehicle solutions and using Raser’s award-winning Symetron™ technology to improve the torque density and efficiency of the electric motors and drive systems used in electric and hybrid-electric vehicle powertrains and industrial applications. They chose to showcase this technology in a Hummer H3. This segment will probably not generate significant revenues or cash flows unless the Company is able to license its
SymetronTM technologies to third parties.
Raser Technologies stock has fallen almost 70% in the last year. But we think it may be due for a big rebound soon. Some of the reasons for our thinking this are as follows:
The U.S. Secretary of Commerce Gary Locke invited the Company's Principal Executive Officer Richard Clayton to present at a forum titled 'Clean Energy Economy.' The forum was held on October 22nd in Washington, D.C. This could be significant for Raser, as The American Recovery and Reinvestment Act passed earlier this year sets aside millions of dollars in grants and billions in loan guarantees to support and advance renewable energy projects. Raser has applied for several innovative exploration
grants through the Department of Energy's Geothermal Technologies Program and also intends on applying for the 30% Treasury Grant for its current and future power plants as well as loan guarantees for its Lightning Dock, New Mexico project and others. We believe they have a good chance of securing some of these funds. With Raser's Thermo plant now in New Mexico selling power to the city of Anaheim since 2008, utilities now seem to believe that Raser can deliver on its promises. Some evidence of
this came in the form of a (non-binding) term sheet with the Southern California Public Power Authority (SCPPA) for 110 MW of geothermal that envisions part of the purchase price paid up-front, in effect, having SCPPA finance part of the plant construction.
During the three months ended June 30, 2009, Raser recognized revenue totaling $0.4 million as compared to $6,000 during the same period in 2008. During the second quarter of 2009, it began selling electricity generated by its Thermo No. 1 geothermal power plant to the City of Anaheim. During the second quarter, the Company generated approximately 4,876 MW hours of electricity which was sold at a price of $78.00 per MW
Although Raser is no longer considered a development stage company, its ability to secure liquidity in the form of additional financing or otherwise is crucial for the execution of its plans and its ability to continue as a going concern. This has been the main concern for investors during 2009. But concerns have been alleviated recently - the company announced it has entered into a transaction with three of its line of credit lenders to facilitate the repayment of their loan principal and accrued interest totaling $5.4 million. The offering from Raser to the lenders includes 3,201,526 shares of common stock priced at $1.68 per share, which was at a premium to the closing price of the common stock on the day the offering to the lenders was completed. In addition, the lenders received warrants to purchase 1,600,762 shares of common stock with a strike price of $1.61.
Earlier this year, on July 7th, Raser Technologies sold $25.5M of stock and warrants in a secondary offering. According to press reports, this amounted to 13% of Raser's stock, thereby valuing the company at approximately $200M. The units, each consisting of 1 share and 1/2 a warrant exercisable at $4.62 was offered at $2.98. Depending on the method used to value the warrants, this means that the institutional investors who purchased the shares valued the stock at between $2.50 and $2.75 per share. Currently the shares stand at around $1.24, so at a considerable discount to what the they were sold at in July. The 52 week range of the shares has been between $1.21- $5.63. There is certainly
scope for plenty of upside here.
Earlier this month Raser released an update on its geothermal activities and its PHEV project, updating stockholders, the media and the public on its progress and strategy. The Company recently received final approval of a key permit from the New Mexico Oil Conservation Division (OCD) for injection of geothermal fluids for the Lightning Dock No. 1 project. Raser's in-house geology and reservoir management team is conducting its final review of the Lightning Dock resource in anticipation of commencing drilling on site, pending the completion of funding for the project.
Raser is also in the process of negotiating a revision to its power purchase agreement (PPA) with the Salt River Project Agricultural Improvement and Power District. The revision is expected to include an increase in the expected output from the Lightning Dock project as well as an increase in the price of energy under the PPA.
Raser is also in the final stages of testing the fifth production well needed for the completion of Thermo No. 1 as part of its plan to bring the plant to full capacity by the end of the year. The Company is also preparing to re-work existing wells and is taking other steps to optimize the operations of the plant, including working with Pratt & Whitney Power Systems to make certain modifications to the PureCycle units on site. According to the last annual report, assets in Raser's Power Systems (geothermal) segment grew from approximately $6M in 2006 to $168M in 2008.
Raser's future success will be highly dependent on their ability to raise project financing for their very ambitious development plans. They have succeeded in raising significant amounts of money for project finance, now they need to successfully develop those projects if they are to reach profitability. If they fail, the stock price will continue to fall. If they succeed the stock price could rocket upwards from where it is now.
With such large uncertainties, it is difficult to value the company, but the implied valuation from the recent offering, of between $2.50 and $2.75 a share, provides some guidance. These large investors would only have invested if they felt they were getting in at a discount to the value of the business. We believe it is worth taking a speculative risk on buying the shares at around $1.25, thus giving us a big discount to the recent offering. At these beaten-down prices, any good news should cause a sharp spike in the stock price.
Buy Raser Technologies Inc. (RZ:NYSE) up to $1.68
DISCLAIMER: The information here is for informational purposes only and is not a solicitation to buy or sell any of these securities. Investing in this type of company involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance.