‘The middle class rules the world — and because they’re leaderless, they’re unstoppable.’
Geoff Ward
When you go to a conference, it’s hard to predict what you’ll learn.
There’s no telling what key message or memory will stay with you.
For us, that brief quote about the middle class stood out as much as all the presentations at yesterday’s Australian Microcap Investment Conference.
I’m sure Geoff Ward, CEO of Geodynamics Ltd [ASX:GDY], only meant it as a throwaway line.
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But there’s a deeper truth to what Geoff said — and revealing that truth could help make you rich.
Geoff presented a feel-good story yesterday at the Sofitel in Melbourne’s CBD.
His company explores for and develops geothermal energy. It’s a world leader in the field.
I call Geodynamics a feel-good story, because as Geoff pointed out, ‘geothermal is the energy form that everybody wants to see succeed.’
Geoff should know that geothermal energy is not alone there.
Most investors would love to see every life-saving biotech and revolutionary tech stock succeed too…but changing the world is hard.
It can also be expensive.
And that ‘feel-good’ factor might have lost its shine by now for investors who’ve owned Geodynamics over its journey.
Since 2001, this company has raised and chewed its way through a whopping $450 million.
But the market values Geodynamics at just $17 million today. That’s less than the value of the cash on its balance sheet.
$450 million is a huge amount of capital to invest in a small-cap stock for minimal result.
From a high of $2.17 per share in late 2007, this stock has dropped by 98%.
Impatient investors would have cut and run from Geodynamics long ago.
But that’s in the past. Successful investing is all about the future.
And Geodynamics could be on the right side of some powerful trends…
Three shots on goal
Geothermal power has been around for more than a century.
At an affordable price, it offers long term energy security and sustainability.
That alone should pique your interest if you worry about how industry can keep running on Australia’s east coast when this country’s energy producers export all their natural gas at exorbitant prices.
By the way, our Resources Analyst, Jason Stevenson, has strong views on how you could make money from oil and gas. If he’s right, the four stocks he has picked could bring bold investors huge profits.
Geothermal power is clean, highly reliable and doesn’t impact too badly on the land.
Geodynamics has three geothermal shots on goal.
One project is in Central Australia’s Cooper Basin.
You probably know the Cooper Basin as a fertile gas field…but there’s plenty of heat in those old rocks.
The company has completed the trial of a geothermal pilot plant in the Cooper. It has also signed an exclusive agreement with Beach Energy Ltd [ASX:BPT] to negotiate a farm-in.
The next two projects are more speculative.
Geodynamics has scoped and assessed the potential to supply geothermal power to two South Pacific islands: Efate in Vanuatu and Savo in the Solomon Islands.
As you might imagine, the geology in these volcanic regions looks like it can support geothermal power generation. You don’t have to drill any more than a few hundred feet before you hit scorching temperatures.
Combine that with two governments keen to fast track their developing economies, and you have the makings of an investment opportunity.
But there’s a catch…
One of history’s greatest tailwinds
Geodynamics needs $135 million to build a scaled-up power plant in the Cooper Basin.
It would need another $200 million to develop its projects in Vanuatu and the Solomon Islands.
The market gives Geodynamics little chance of achieving those goals.
But the way we see it, this company could make the most of one of history’s greatest tailwinds.
We’re talking about the continued rise of the middle class.
Vast swathes of the world’s population still lack access to the basics we in Australia take for granted.
Along with potable water, reliable electricity supply is a key building block for developing economies.
Most of the people who live on the islands we mentioned earlier simply don’t have it.
But as they come to appreciate the widening gulf in quality of life between their islands and those that benefit from reliable power, they’ll pressure their governments more and more to provide that kind of infrastructure.
The push towards the middle class in what we once knew as the ‘Third World’ is relentless.
And in many parts of the world, it has a long way to run.
Companies with the nerve to make these infrastructure deals happen should make plenty of money for their shareholders.
It’s not just the blue-chip, household name companies that can seal these deals.
Take Liquefied Natural Gas Ltd [ASX:LNG] for example. This former small cap is developing a gas liquefaction plant in Louisiana in the US.
LNG is pulling it off…and the stock has brought readers of Australian Small-Cap Investigator returns of more than 600% since we recommended that they buy in.
To reap profits as big as this, you have to play in the small-cap sector.
Geodynamics has a lot of work ahead before it can claim similar levels of success.
But the big-picture trends look supportive…and from little things, big things can grow.
Cheers,
Tim Dohrmann,
Editor, Money Morning
The post How You Could Profit from Geothermal Power appeared first on Stock Market News, Finance and Investments | Money Morning Australia.
