Fromt he Vancouver Sun – March 8, 2011

by Gordon Hamilton

Vancouver geothermal energy company Magma Energy has agreed to buy Plutonic Power in a share-swap deal worth about $190 million.

The
purchase will create a new entity, to be named Alterra Power Corp.,
with diversified operations and better access to capital markets, two
key ingredients to grow the company, Magma chief executive officer Ross
Beaty said Monday in a conference call with financial analysts.

“Size really does matter,” Beaty said. “The power business is all about the cost of capital.”

He
said Alterra intends to develop new energy sources either within Canada
or internationally, whatever provides the best return to shareholders.

Alterra
Power will have a market capitalization of $575 million and operations
in four alternative energy sectors — geothermal, wind, hydro and solar.

Shareholders of both companies must agree to the merger at meetings expected to be held next month.

Magma
operates geothermal plants in Nevada and Iceland and has a portfolio of
properties in the western U.S., Iceland and Latin America.

Plutonic
operates a run-of-river hydro project at Toba Montrose near the head of
Toba Inlet, which went into operation last year, and a wind farm at
Dokie Ridge near Chetwynd, which has only just come onstream. It also
has plans to acquire three solar projects in Ontario from First Solar
Inc.

The $190-million valuation is based on Magma’s closing price
Friday of $1.20 a share and the 65.4 million Plutonic shares
outstanding. Plutonic shareholders are to receive 2.38 Magma shares for
each Plutonic share.

Beaty said the acquisition should allow the
new company access to lower-cost capital but the expansion into other
alternative energy sectors gives Alterra Power better opportunities to
grow.

“Geothermal is a relatively tough business,” Beaty said,
noting that geothermal has lower capital costs but the best geothermal
sites are already either developed or already staked out by energy
companies for future development.

“Plutonic adds opportunities to grow in other sectors,” he said.

The
combined company will be producing 366 megawatts of power — Magma’s
existing 198 megawatts and Plutonic’s 168 megawatts. Beaty said the new
company expects to be producing 900 megawatts by 2016.

Plutonic
president Donald McInnes said the deal helps Plutonic as it opens up
access to capital. Plutonic needs between $80 million and $100 million
for expansion projects at Upper Toba and Dokie.

“This gives us the
opportunity to pick the best project in the development pipeline
between the two companies and deploy capital to provide the best
returns,” he said.

Both alternative energy companies have
liquidity issues, and the all-stock deal makes sense because it gives
them scale in a sector where capital costs are high, said analyst Ike
Kaja of Salman Partners.

The all-share deal gives Plutonic
shareholders a premium of 32 per cent over a 20-day weighted average
share price on the Toronto stock exchange, but more important, said
Kaja, it provides shareholders with opportunities for growth.

“Plutonic
had reached the point where it needs to go outside B.C.,” he said. “I
wasn’t too thrilled about the price but since this is an all-stock
transaction, you have two good companies coming together. It improves
scale of economies and you still have the ability to participate on the
upside.”

Beaty told analysts the recent spike in oil prices is going to turn market attention once again to alternative energy projects.