Two Clean Energy Speculations For 2014: Wrap-Up
Tom Konrad CFA
I included two "Clean Energy Speculations" along with my annual
model portfolio of ten clean energy stocks this year.
It's been a tough year for clean energy stocks in general, with my
industry benchmark (Powershares Wilderhill Clean Energy ETF (PBW))
down about 15% since I initiated the portfolios on December 27th
2013. Despite this, both the main portfolio and the
speculations look likely to end the year with small gains.
The two speculations were Ram
Power Corp (TSX:RPG,
OTC:RAMPF) and Finavera Wind
Energy (TSX-V:FVR, OTC:FNVRF).
Both are clean energy project developers trading for a tiny
fraction of the amount of money they'd invested in their
projects. My speculative thesis was that most investors had
given up hope that the projects would amount to anything, and so
were willing to sell the stocks for considerably less than the
remaining underlying value. Both trade in Toronto, and the
prices discussed below will also be Canadian dollars unless
Ram Power is a geothermal developer. Like many
geothermal developers before it (Remember Nevada
Geothermal?), the company had been overly optimistic about
the potential of its geothermal resources. In particular,
the company had been unable to produce enough geothermal steam at
its San Jacinto-Tizate project in Nicaragua to produce enough
electricity and sales to meet the covenants its lenders had
required to finance the project. At the end of 2013, Ram had
negotiated one last chance to remediate the site's wells in the
hope of increasing output. The stock's recovery from its 8¢
level at the time of inclusion rested on the success of the
To make a long story short, Ram Power reported the results of the remediation program on May 27th. The results were insufficient to satisfy the loan agreements, putting the project back in default. Since most of Ram's value lay in San Jacinto-Tizate, I told readers to sell on June 3rd in my monthly update. Ram continued to trade in the 3¢ to 4¢ range for the month of June, so readers should have been able to sell their shares for a loss of between 50% and 60%; I have been using a loss of 57% for performance tracking purposes. The stock has since fallen to 1¢.
Finavera Wind Energy was a wind developer in the process
of selling two wind projects (Miekle and Cloosh) to companies
which would take them on to the construction phase. Finavera
expected to bring both projects to financial close and would
receive payments which would more than cover its substantial debts
by the end of 2014. When I included Finavera as a
speculation, I placed the residual value to Finavera shareholders
at between 17¢ and 42¢ Canadian per share, with my best guess
being 22¢. Since the stock was trading at 7.5¢, it seemed
reasonable to include the stock as a speculative pick.
In some ways, 2014 was a repeat of 2013 for Finavera, with
continued delays eroding the value of the stock. Despite
this, the company eventually reached final agreements on payment
for both the wind farms which will net the company approximately
$6 million after expenses and payment of liabilities.
Finavera has further negotiated a purchase agreement with a San
Diego, CA based residential solar marketing firm, Solar Alliance
of America for $4 million in cash an additional 9.5 million shares
of stock (about 20% of the combined company.)
I'm not an expert on the residential solar market, and find the
future combined Finavera/Solar Alliance company difficult to
value. Nevertheless, I think it's likely that, once the deal
is consummated, other investors will see value in the opportunity
to invest in their rapidly growing industry. Hence, I am
holding on to my shares (which have recently been trading for 11¢
to 13¢) for a future selling opportunity.
If we were to sell at 12¢ Canadian, the 60% gain on Finavera
shares would neatly cover the 50% to 60% loss on Ram. The
merger with Solar Alliance values Finavera shares at 21¢, which
would result in a 180% gain if we can realize it, but
somewhat less if converted to US dollars, since the currency has
fallen almost 7% this year compared to the US dollar.
I do not know how high the stock might go, so I plan to sell my
stake in portions as it advances.
DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results. This article contains the current opinions of the author and such opinions are subject to change without notice. This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
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