djibouti rb milestone-ehr-initial-valuation-report1

Geothermal Focus with Great Prospects Earth Heat Resources Limited (EHR) is an Australia based geothermal energy focused

company. It has 11 geothermal exploration licenses (GELs) in Australia besides two

upcoming projects in Argentina and Djibouti, as well as a small stake in a North American

shale play that it is looking to convert into annuity. The Copahue (Argentina) and Fiale

(Djibouti) projects will have a capacity of 180 MW upon completion and would transform

EHR into a significant geothermal player.

The Copahue project is located in a historically active volcanic area and prior testing has

detected commercially viable, vapor dominated geothermal reserve. A pilot project was also

established for several years supplying electricity to a nearby town. The Renewable Energy

Act in Argentina provides for pricing of geothermal power produced by EHR at $100-

$120/MWh, in addition to other benefits such as carbon and tax credits. This is attractive

vis-à-vis similar agreements in Australia for $75-$80/MWh and $85-$135/MWh in the US.

The Fiale project has also shown promising results, registering temperatures of up to 359

°C at 2,000 meters. This project is located in the Assal region within the Rift Valley, an area

of recent volcanic activity and, tectonically, the most active structure in the zone. Hence,

given the advanced stages of its projects, EHR‟s risk profile is low and attractive.

Besides Djibouti, EHR believes there is strong opportunity to develop geothermal in other

East African regions, viz. Kenya, Tanzania, Uganda, Zambia, Rwanda and Burundi, a view

with which we concur although one we have not included in valuation which only includes

contribution from Copahue and Fiale. We have used the Discounted Cash Flow

Methodology for valuing EHR and initiate coverage with a target price of A$0.226/share

Investment Arguments

Attractive Risk Profile: EHR has a favorable risk profile with significant progress on

the confirmation and feasibility stages. The minimum guaranteed price for the Copahue

project at $100-$120/MWh is attractive and EHR is currently exploring financing options

for developing this project. For the Fiale project, it is evaluating off-take agreements

and has agreed on the different development tranches with its JV partner, Electricitie

de Djibouti. Previous drilling has led to significant progress on this project. Hence, there

is considerable visibility in terms of revenue and cash flows for these two projects

Strong Macro Support: EHR‟s projects have facilitating macro-economic conditions

such as availability of existing power lines; plentiful water supply; attractive off-take

agreements; expensive alternate energy source (particularly relevant for Fiale where

diesel costs more than twice the expected off-take price); and government support

Socius Investment Provides Comfort: Socius Capital, a US based PE firm, has

recently made an A$5 million investment in the company. It has an impressive track

record in the clean energy sector and usually invests in companies with a minimum

EBITDA of $2 million for four to six years. Further, it has invested at the current market

price and benefits just like other public investors. We believe this provides incentive to

prospective investors looking to benefit from Socius Capital‟s investment expertise

Attractively Valued: We have valued EHR on the basis of Discounted Cash Flow

Valuation, taking into account the expected cash flows from the Copahue and Fiale

projects. We assume the Copahue project to fully come on line by 2015 while the Fiale

project is expected to be fully operational by 2017. The total capital expenditure on the

projects is expected to be ~$600 million. Our model provides a fair value of

A$0.226/share. We haven‟t factored contribution from any other project and believe

that there is significant upside potential from the last traded price of A$0.051/share

Price (A$): 0.051

Target Price (A$): 0.226

Beta: 1.1

Price/Book Ratio: 2.1

Debt/Equity Ratio: 0.0

Listed Exchange: ASX

Recent News

16/03/2011: Earth Heat Resources signs

MoU with Drake & Scull Water and Power

(DSWP) to jointly explore, bid for and secure

geothermal project opportunities in the

Middle East and Africa

08/03/2011: Earth Heat Resources Limited

announced that it has engaged the services

of specialist consulting group Sinclair Knight

Merz (SKM) to provide independent services

15/02/2011: Earth Heat appoints key

personnel in Argentina for Copahue

geothermal project

14/02/2011: Earth Heat Resources receives

A$5 million investment support from Socius

Capital Group LLC

Shares in Issue

566.22 M

Market Cap

(A$M) 28.88

52 Week (High): A$0.095

52 Week (Low): A$0.013

Earth Heat Resources Limited

(Ticker:ASX:EHR)

April 13, 2011

www.RBMILESTONE.com

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EHR (LHS) ASE 200 (RHS)

Equity Research and Market Intelligence

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Company Overview

Introduction

Earth Heat Resources (EHR) is engaged in geothermal exploration activities in Argentina,

Djibouti and Australia. In addition, the company is planning to explore opportunities in coal

bed methane, the other area of its clean energy focus. The company was formerly known

as Fall River Resources Limited (FRV) but changed its name in July 2010 after acquiring

Earth Heat Australia Pty Limited in January 2010 which was engaged in geothermal

exploration, primarily in Australia. In 2009, the management reviewed the company‟s

strategy and concluded that EHR‟s success would be more likely if the company pursued

opportunities in the New Energy sector. In line with this new objective, the company sold

its non-core assets including the sale of West Florence Oil and Gas property to ASX-listed

Adelaide Energy Limited in June 2010.

Prior to the acquisition, EHR or FRV as previously known had mounted debt worth $4

million and faced considerable uncertainty. Subsequently, the company reached a

settlement with its creditors and raised approximately $1.2 million to fund working capital,

therefore becoming debt-free. During the period the company also changed its

management and relocated to Adelaide, Australia.

Exhibit 1 : Key Achievements

Key Achievements in 2010

May 2010 Announced acquisition of Copahue project

Fixed residual FRV issues

June 2010 Divested remaining significant stake to ADE

July 2010 Rebranded to Earth Heat Resources from FRV

August 2010 Roadshow in North America to introduce major fund investors to the company‟s prospects

September 2010 Commencement of JV with Electricitie Di Djibouti and strategic investor discussions

October 2010 Announcement of participation in the Fiale Development project

February 2011 A$ million strategic investment announced by a sophisticated investor

Source: RB Milestone, Company Reports

The company farmed- into the Copahue project based in Argentina in May 2010 and the

Fiale project in Djibouti, East Africa in October 2010. These two projects have the potential

to generate 180 MW of geothermal energy upon completion. The company is looking to re-

list on the Toronto Stock Exchange in 2011 where there are more New Energy companies

listed than on the ASX. Also, financing options for the geothermal sector are limited in

Australia while, in contrast, investor appetite for the same is much stronger in North

America. Recent fund raisings by Magma Energy and Ram Power on the TSX corroborate

the same. EHR also believes that the financing for Fiale and Copahue would be easier

than projects in Australia, given the maturity profile of these projects, which can even

enable debt financing and allow the company to avoid financing through significant equity

dilution

In February 2011, New York-based Socius Capital Group LLC made an investment of A$5

million into the company. Socius has an impressive investment record in clean technology

companies as well as other emerging growth companies. EHR will be using the funds to

progress the Copahue project in Argentina including the feasibility study with

environmental surveys and front-end engineering and design, in addition to taking care of

commercial aspects of the development.

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Key Projects

Copahue Project, Argentina

EHR acquired the Copahue project in Argentina in May 2010 under a Heads of Agreement

(HOA) signed with Geothermal One Inc. of Canada. EHR has 87.5% interest in the

earnings from the project after covering certain costs of the development.

Exhibit 2 : Copahue Project Area

Source: Company Reports

The Copahue project was offered by the Neuquen Provincial and Argentinean government

authorities for open tender in 2010. Under the Renewable Energy Act (REA), the

Argentinean federal government guarantees a purchase price of $100-$120/MWh for the

first 30MW of geothermal sourced electricity being produced in Argentina. The equivalent

average price offered in Australia is $70-$85/MWh, which underscores the attractiveness

of the power purchase agreement. The REA gives EHR an option to secure the

guaranteed price or seek higher pricing by selling electricity to more suitable parties that

are willing to pay a higher price for the power.

Additional details of the HOA are:

EHR can earn a 50% interest by meeting the expenditure requirements to complete

bid stages 1-2 which include geophysical, geological and engineering studies leading

to a scoping study, at an estimated cost of $18 million

EHR can earn a further 25% interest by meeting the expenditure requirements to

complete stages 3-4 which include site works and preparation for full feasibility study

at a cost of approximately $35 million

Upon completion of stage 4, Geothermal One has the option to sell the project to EHR

or participate in the JV by meeting its pro-rata proportion of ongoing expenditure. It

also has the option of transferring its 12.5% interest in the project to EHR if EHR is

willing to cover all expenditure in the third period of earning

Finally, despite the above-mentioned estimated expenditure, EHR has to undertake a

minimum expenditure of at least $15 million during the first two years. Total cost of the

project is estimated to be ~$100 million

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The Copahue project is located in the Western part of Argentina‟s Neuquen province,

~300 km from the province‟s capital, a few kms from the Chilean border and 55 kms from

the national electricity market interconnector. There is an existing power line in place that

connects the old site to Caviahue ski village, which is in turn connected to the national grid

through first Loncopahue and then into Zappala. This existing power line is an attractive

feature of the project because if EHR operates at a lower baseload (e.g. 10 MW), then it

can readily sell to the closest market in Caviahue but if it expands then it can supply to a

party that would require a larger output and having an existing power line reduces the risk

of transmission losses, which is an important consideration during power purchase

agreement negotiations.

The geothermal resource occurs on the North-East flank of the Copahue volcano which is

a young, historically active stratovolcano. The project is also situated in a broad Caldera

believed to have formed before the Copahue volcano. The Caldera retains its expression

as a valley with steep walls. Erosions have caused gaps in several points which provide

access to the Cophaue-Caldera area from more populated areas of Argentina to the East.

Principal activities in the area are tourism and low-intensity agriculture. One of the zones

of thermal manifestations related to the geothermal resource, Termas de Copahue, has

been developed for seasonal use as a therapeutic spa.

Geothermal exploration and development activities have been undertaken at Copahue

since the 1970s, including a number of superficial and shallow exploratory surveys

(geology, geochemistry, geophysics and temperature gradient drilling). Four deep wells

with depths reaching as much as 1,414 meters have also been drilled in the area. These

wells have demonstrated the presence of commercially viable, vapor-dominated

geothermal reservoir in at least a part of the project.

One of the four wells was used to supply a pilot power plant with a capacity of slightly less

than one MW for several years. The most recent well was drilled to supply a district

heating system at Termas de Copahue, a pipeline was constructed for that purpose but is

no longer in use.

A deeper feasibility study conducted by Japanese International Cooperation Agency in

1992 indicated that an area ~4km2 around the pilot power plant had the potential to

support an additional 30 MW power station with individual wells capable of producing more

than 7 MW p.a. Subsequent shallow gradient holes and studies indicated that the

geothermal potential might support over 100 MW of power generation as the reservoir is

expected to extend over 30 km2 or more. Hence, significant infrastructure for geothermal

activities is already in place.

Other Important Highlights of the Project:

Comprises an identified initial 30 MW geothermal development with possibilities for

significant expansion

Hot, dry vapor (steam) dominated reservoirs with temperatures of 235 degrees

Celsius at 600 meters located in the Copahue volcanic complex provide the

geothermal heat source

Development expected to produce first power and generate revenue within 4 years

Power lines connected from site to nearby town of Caviahue, which in turn is

connected to the grid

Plentiful water supply in the Patagonian locality

In between two major roads connecting Argentina and Chile

Neuquen Province, with a population of 475,000, is a prosperous resource state

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Adjoining Mendoza with a population of 1.7 million is a prosperous tourist and wine

district

Commercial Aspects of the Project

At 30 MW and pricing of $110/MWh, we compute revenues of ~ $27.5 million p.a.

EHR has computed an IRR exceeding 25% over the 30-year expected life of the

project

Existing power lines adjacent to the pilot plant enables the company to supply

electricity to end users such as mine operators at a higher price than what it will

receive from the Argentinean government

Fiale Project, Djibouti

In October 2010, EHR signed a Memorandum of Understanding with the Djibouti Ministry

of Energy and Natural Resources and Electricitie de Djibouti. The project involves staged

development of a 150-MW project over several years.

Under a Heads of Agreement (HOA) it signed during the year, EHR is entitled to:

Lodge certain applications for geothermal application areas in Kenya, consequent

upon discussion with the Mines Ministry

Continue to access identified highly-prospective geothermal tenements in Djibouti

Acquire rights to continue a number of filed exploration applications in Botswana for

coal bed methane opportunities

Exhibit 3 : Geothermal System


During the quarter ended December 2010, the company engaged in discussions with

Electricitie De Djibouti, its JV partner in the project, about the structure of the JV and the

underlying power purchase agreement (PPA). The Fiale project has had six wells drilled to

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date, with highly promising results, particularly in terms of productivity. Temperatures have

been recorded up to 359 degrees Celsius at a depth of 2,000 meters.

EHR will develop the project in three phases as follows:

To define, develop and install a 50 MW plant as soon as feasible

To define and expand to 100 MW capacity

To define and expand to 150 MW total capacity

The first stage involves a full geological and geophysical survey; approvals for drillings;

engineering studies; identification of accessible and appropriate drilling locations;

tendering and permitting of drilling rig; and the mobilization of construction materials and

equipment and other services to the site. EHR‟s exploitation program to define the first

phase is expected to be completed by mid 2011. The company is exploring a number of

JV discussions and progressing financing options via debt and equity for this project.

Six wells have been drilled to date and by 2013, the first tranche is expected to become

fully operational with 50 MW capacity coming on line. The work on the next tranche will

start immediately after that.

South Australia GELs

The company was granted additional geothermal licenses in April 2010, bringing its total

GELs to 11, covering an area of ~16,850 sq. km. The area is located in a higher heat flow

zone known as the South Australian Heat Flow Anomaly.

Exhibit 4 : South Australian GELs


EHR believes this area to be promising as it contains a thick layer of shales and similar

sediments which are likely to act as geothermal “insulators” and is also blessed with the

thickest and most extensive development of potential shallow reservoirs. EHR also

anticipates that previous igneous intrusive activity has added to the heat-generating

capacity of the basement rocks. The company also believes that salt features present

could act as natural vertical conduits for focusing heat into the target shallow reservoir

layers. Other positive factors include the fact that an electricity transmission infrastructure

is already in place and located conveniently. This is a region where previously positive

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exploration results have been reported by listed companies such as Petratherm Limited,

Geothermal Resources Limited, Torrens Energy Limited and Eden Energy Limited.

Exhibit 5 : Earth Heat Interests

Source: Company Reports; Note: Location of EHR resources shown in the green with the major ASX listed company

tenements who have reported positive heat flows.

EHR successfully applied for suspension of its GELs in South Australia for a period of 12

months beginning September 30, 2010, in light of the challenging market conditions faced

in Australia by the company and other geothermal explorers in general. The company

doesn‟t expect to incur any significant expenditure on this asset in the near future.

Other Assets

The company is pursuing an agreement with its JV partner and operator Samson Oil and

Gas to convert its interest in the Baxter Shale project, located in Wyoming US, to a royalty.

In addition, the company is also pursuing coal bed methane development and alternative

energy opportunities in other East African countries apart from Djibouti. EHR particularly

finds the prospects in its Kenyan and Botswana interests buoyant.

Exploration Commitments

Spring River Oil and Gas Interests. The exploration expenditure commitments

related to EHR‟s share of the activities required to be conducted in compliance with

the licensing terms. There is no fixed financial commitment under the license terms

Australian Geothermal Interests. There is no minimum exploration expenditure

commitment according to the license terms

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Industry Overview

Introduction

Geothermal energy emanates from the heat contained within the earth that can be utilized

for energy production purposes. The first measurements of heat taken by thermometer

were probably performed in 1740 by De Gensanne in a mine near Belfort, in France. By

1870, modern scientific methods were being used to study the thermal regime of the earth,

but it was not until the 20th century and the discovery of the role played by radiogenic heat

that mankind could fully comprehend such phenomena as heat balance and the earth's

thermal history.

It has been estimated that the total heat content of the earth, calculated above an

assumed average surface temperature of 15 °C, is in the order of 12.6 x 1024 MJ and that

of the crust is 5.4 x 1021 MJ. It shows that earth contains immense thermal energy of

which only a fraction could be utilized by mankind. The utilization is limited to areas in

which geological conditions permit a carrier (water in the liquid or steam phases) to

'transfer' the heat from deep hot zones to or near the surface, thus giving rise to

geothermal resources. Innovative techniques in the near future, however, may offer new

perspectives in this sector.

Exhibit 6 : Geothermal System

Source: International Geothermal Association

The earth has an internal heat content of 1031 joules, of which about 20% is residual heat

from planetary accretion and the remainder generated by higher radioactive decay rates in

the past. Natural heat flows are not in equilibrium and the planet is slowly cooling down on

geologic timescales. For example, the mantle‟s temperature has decreased by about 300-

350 °C in three billion years, remaining at ~4,000 °C at its base. Human extraction taps a

minute fraction of the natural outflow, often without accelerating it, hence geothermal

energy is considered to be sustainable because heat extraction amounts are small when

compared to the earth‟s heat content.

An important factor in geothermal energy is geothermal gradient which refers to an

increase in the earth‟s temperature with respect to depth. Modern technology allows

depths of up to 10,000 meters and the average geothermal gradient is 2.5-3 °C/100

meters. In other words, if the mean annual temperature of the external air is 15 °C, then

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the temperature at a depth of 2,000 meters can be expected to be about 65°-75 °C and at

3000 meters, 90°-105 °C, etc. There are, however, areas in which the geothermal gradient

is far from the average value. Areas in which the deep rock basement has undergone

rapid sinking and the basin is filled with geologically 'very young' sediments, the

geothermal gradient may be lower than 1 °C/100 meters. On the other hand, there are

some 'geothermal areas' in which the gradient is more than ten times the average value.

Geothermal systems are found in regions with normal or slightly above-normal geothermal

gradient, especially in the regions around plate margins where the geothermal gradient

may be significantly higher than the average value. In the first case, the systems will be

characterized by low temperatures, usually no higher than 100 °C at economic depths,

while in the second the temperatures could cover a wide range from low to very high,

reaching even above 400 °C. A geothermal system comprises a heat source, a reservoir

and a fluid. The heat source can be either a very high temperature (> 600 °C) magmatic

intrusion that has reached relatively-shallow depths (5-10 km) or, as in certain low-

temperature systems, the earth's normal temperature which, as we explained earlier,

increases with depth. The reservoir is a volume of hot permeable rocks from which the

circulating fluids extract heat. The reservoir is generally overlain by a cover of

impermeable rocks and connected to a surficial recharge area through which the meteoric

waters can replace or partly replace the fluids that escape from the reservoir through

springs or through extraction by boreholes. The geothermal fluid is water, mostly meteoric

water, in liquid or vapor form, depending on its temperature and pressure. This water often

carries with it chemicals and gases such as CO2, H2S, etc. Figure 6 is a simplified

representation of an ideal geothermal system.

In a geothermal system, heat source is the only element that needs to be natural while the

other two could be artificial. For example, geothermal fluids extracted from a reservoir to

drive a turbine in a geothermal power plant could, after their utilization, be injected back

into the reservoir through specific injection wells. In this way, natural recharge of the

reservoir is integrated with an artificial recharge. For many years now re-injection has also

been adopted in various parts of the world as a means of drastically reducing the impact

on the environment of geothermal plant operations. An example of this is the Hot Dry

Rocks, which resulted from an experiment conducted in 1970 in New Mexico, USA. In Hot

Dry Rocks, high-pressure water is pumped through the body of a hot compact rock,

leading to hydraulic fracturing. The heated water is then forced out through a second well

drilled into the rock.

According to International Geothermal Association (IGA), there were ~8,933-MW capacity

geothermal power plants installed in 24 countries in 2005 generating 55,709 GWh of

power annually. The capacity has increased by a CAGR of 3.7% to reach 10,715 MW in

2010 while power generation has touched 67,246 GWh. By 2015, IGA expects the

capacity to reach 18,500 MW at a CAGR of 11.5%, with the US leading with ~7.8 GW of

new capacity in pipeline. As many as 70 countries have planned capacity additions during

the period including those in Europe and the Americas that did not have geothermal plants

in 2010. The power generation target for renewable energy sources is generally set in

terms of proportion of total electricity production, ranging between 5% and 30%. For

example, Europe has targeted 20% of its power generation from renewable sources by

2020, Brazil 75% by 2030, and China 15% by 2020.

Geothermal plants are costly to build – the exploration, drilling and installation costs are

high – compared to conventional plants. Drilling accounts for over half the total costs.

However, once installed, the maintenance costs are fairly low. Moreover, a geothermal

plant requires very little fuel (needed for pumping only) and is thus immune to fuel price

fluctuations. Hence, in feasible areas where the generation can be considerable,

geothermal can prove to be a low-cost, environment-friendly alternative. The oldest and

most commercially-viable geothermal systems are volcanic associated developments.

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Extraction

Traditionally, geothermal plants were built on the edges of tectonic plates where high-

temperature geothermal resources are available near the surface but later improvement in

technology, drilling and extraction techniques enabled plants to be set up over a broader

geographic area.

Electrical plant construction and well drilling costs are at about €2-5 million per MW of

electrical capacity, while the break-even price of a typical project is 0.04-0.10 € per kWh.

The cost and size of a plant varies according to the end use. For example, direct heating

applications can use much shallower wells with lower temperatures, so smaller systems

with lower costs and risks are feasible.

Extraction is carried out in following three steps:

Geological Studies. Geological and hydrogeological studies help in identifying the

location and extension of the areas worth investigating. They also facilitate production

processes and identify suitable extraction techniques

Geochemical Surveys. A geochemical survey consists of sampling and chemical

and/or isotope analysis of the water and gases from geothermal manifestations (hot

springs, fumaroles, etc.) or wells in the study area. Geochemical surveys are used in

determining whether the geothermal system is water or vapor dominated, estimating

temperature at depth; homogeneity of the water supply; and chemical characteristics

of the deep fluid, etc. Some of the techniques used at this stage such as seismics,

gravity and magnetic are even used during the final stages of extraction to better

define the shape, size, depth and other important characteristics of the geological

structure

Drilling. This represents the final phase of the exploration program and is the only

means of determining the real characteristics of the geothermal reservoir and thus of

assessing its potential

Types of Geothermal Power Plants

There are three types of geothermal power plants:

Dry Steam Power Plant. It is the first but the least common type of geothermal

plants. In this system, dry steam straight from the production well (or the geothermal

reservoir) is utilized. The high–pressure, dry steam passes up the production well and

through a rock catcher which consists of a series of mesh filters that catch any rocks,

stones or other debris which can damage the turbine blades. The steam then passes

through a steam turbine that produces electricity. The steam exits into a turbine

condenser that is under a vacuum and forms the condensate which is then pumped

through a series of scrubbing towers that remove the gases which are non-

condensate. From here, it is pumped on to the water cooling towers where the

condensate is cooled and any remaining non-condensable gases are re-circulated to

the scrubbers before being re-injected into the cooled condensate down into the

injection well and back into the geothermal reservoir

Flash Steam Power Plant. This type of plant injects water and condensate into the

geothermal reservoir through the injection well and forces water at high temperature

up through the production well. From the production well it is pumped through a series

of pressure vessels which are at a lower internal pressure than the hot geothermal

fluid, causing it to flash off into low, medium and high pressure steam. The steam then

passes through the turbine condensing and returning to the geothermal reservoir

along with the non-condensable gases through the injection well

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Binary Cycle Power Plant. This type of plant uses high-temperature geothermal

water to heat another fluid which has a lower boiling point than water. The secondary

fluid, usually isobutene or isopentane, is heated by the geothermal water through a

heat exchanger and flashes off into vapor. This vapor is used to drive a turbine and

condensed back to a fluid before returning to the heat exchanger to start the cycle

again. Because the geothermal fluid passes from the production well through the heat

exchanger and back down the well in a continuous circuit, this is a closed loop

system. Therefore, in this type of plant there is no escape of noxious gases and there

is no gas scrubbing required

Applications

Approximately 70 countries made direct use of 270 petajoules (PJ) of geothermal heating

in 2004, more than half of which went for space heating and a third for heated pools. The

remainder supported industrial and agricultural applications. Global installed capacity was

28 GW but capacity factors tend to be low (30% on average) since heat is mostly needed

in winter. The above figures are dominated by 88 PJ of space heating extracted by an

estimated 1.3 million geothermal heat pumps with a total capacity of 15 GW. Heat pumps

for home heating are the fastest-growing means of exploiting geothermal energy, with a

global annual growth rate of 30% in energy production.

Following are the important utilizations of geothermal resources:

Electricity Generation

Electricity generation as an application for geothermal systems is gaining popularity.

Electricity is generated using either turbines or binary plants. Conventional steam turbines

require fluids at temperatures of at least 150 °C. With this type of unit, steam consumption

(from the same inlet pressure) per kilowatt-hour of electricity produced is almost double

that of a condensing unit. However, atmospheric exhaust turbines are extremely useful as

pilot plants; stand-by plants in the case of small supplies from isolated wells; and for

generating electricity from test wells during field development. They are also used when

the steam has a high non-condensable gas content (>12% in weight). The atmospheric

exhaust units can be constructed and installed very quickly and put into operation in little

more than 13-14 months from their order date. This type of machine is usually available in

small sizes

Exhibit 7 : Atmospheric Exhaust Geothermal Power Plant

Source: International Geothermal Association

The binary plants utilize a secondary working fluid, usually an organic fluid (typically n-

pentane), that has a low boiling point and high vapor pressure at low temperatures as

compared to steam. The secondary fluid is operated through a conventional Rankine cycle

(ORC): geothermal fluid yields heat to the secondary fluid through heat exchangers in

which this fluid is heated and vaporizes. The vapor produced drives a normal axial flow

turbine and is then cooled and condensed, at which point the cycle begins again. Binary

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plants are usually constructed in small modular units of a few hundred kWe to a few MWe

capacity. These units can then be linked up to create power plants of a few tens of

megawatts. Their cost depends on a number of factors, particularly on the temperature of

the geothermal fluid produced which influences the size of the turbine, heat exchangers

and cooling system. The total size of the plant has little effect on the specific cost as a

series of standard modular units is joined together to obtain larger capacities.

Binary plant technology is a very cost-effective and reliable means of generating electricity

from the energy available from water-dominated geothermal fields.

Exhibit 8 : Geothermal Binary Power Plant

Source: RB Milestone, International Geothermal Association

Direct Heat

Heat generation is the most common, oldest and versatile utilization of geothermal energy.

The best-known forms of utilization include bathing; space and district heating; agricultural

applications; aquaculture; and some industrial uses but heat pumps are the most

widespread (12.5% of the total energy use in 2000). Geothermal district heating systems

are capital intensive. The main costs are initial investment costs, for production and

injection wells; down-hole and transmission pumps, pipelines and distribution networks;

monitoring and control equipment; peaking stations and storage tanks. Operating

expenses, however, are comparatively lower than in conventional systems, and consist of

pumping power, system maintenance, quality control and management.

Agricultural Applications

Agricultural applications of geothermal fluids consist of open-field agriculture and

greenhouse heating. Thermal water can be used in open-field agriculture to irrigate and/or

heat the soil. The greatest drawback in irrigating with warm waters is that in order to obtain

any worthwhile variation in soil temperature such large quantities of water are required, at

temperatures low enough to prevent damage to the plants, that the fields would be

flooded. One possible solution to this problem is to adopt a subsurface irrigation system

coupled with a buried-pipeline soil-heating device. The most common application of

geothermal energy in agriculture, however, is in greenhouse heating which has been

developed on a large scale in many countries.

Industrial Applications

Finally, geothermal energy is also used in industrial applications such as process heating;

evaporation; drying‟ distillation‟ sterilization; washing; de-icing; and salt extraction.

Additional examples also include concrete curing; bottling of water and carbonated drinks;

paper and vehicle parts production; oil recovery; milk pasteurization; leather industry;

chemical extraction; CO2 extraction; laundry use; diatomaceous earth drying; pulp and

paper processing; and borate and boric acid production. There are also plans to utilize

13


low-temperature geothermal fluids to de-ice runways and disperse fog at some airports. A

cottage industry has developed in Japan that utilizes bleaching properties of the H2S in

geothermal waters to produce innovative and much-admired textiles for ladies' clothing.

Major Producing Countries

In 2010, the United States led the world in geothermal electricity production with 3,086

MW of installed capacity from 77 power plants. The largest group of geothermal power

plants in the world is located at The Geysers, a geothermal field in California. The

Philippines comes next with 1,904 MW of capacity on line. Geothermal contributes 18% to

the country‟s total electricity generation. Geothermal power plants now exist in 19

countries and new plants continue to be commissioned annually, such as in Indonesia,

Italy, Turkey, and the United States in 2009. Chevron Corporation is the world's largest

private geothermal electricity producer.

Exhibit 9 : Installed Geothermal Capacity (2010)

Source: Geothermal Energy Association, RB Milestone

Since 2004, significant additions of electric capacity have taken place in Indonesia,

Iceland, New Zealand, the United States and Turkey, with Turkey and Iceland each

experiencing growth of more than 200 per cent. Global capacity has increased 1.8 GW

since 2004. During 2009, the US saw six new plants come on line – increasing domestic

capacity by an estimated 181 MW, or 6 percent – followed by Indonesia (137 MW), Turkey

(47 MW), and Italy (40 MW) for a total of at least 405 MW added. While this was less than

the 456 MW added in 2008, it was considerably larger than the 2007 market of 315 MW. In

addition, in the US states of Louisiana and Mississippi, two projects were initiated to

generate geothermal power with hot water produced by oil and gas wells. By the end of

2009, geothermal power plants operated in 24 countries and totaled approximately 10.7

GW of capacity, generating more than 67 TWh of electricity annually. Nearly 88% of that

capacity is located in seven countries.

0

500

1,000

1,500

2,000

2,500

3,000

3,500

In M

W

14


Growth Drivers

Strong Contribution from Copahue, Argentina

In case of the Copahue project, significant infrastructure is already in place since it had a

small-scale pilot geothermal plant running in the 1990s. The pilot testing also mitigates

operational risk to a great extent. Further, it also meets essential check-points for a

successful geothermal plant such as heat; porosity/permeability; pressure; site access;

and power agreement. Below are the project economics that are attractive and will provide

a significant boost to EHR‟s income stream. The income stream doesn‟t include other

benefits such as carbon credits, input tariff bonuses, tax credits, accelerated depreciation,

etc.

Exhibit 10 : Project Economics - Copahue

Parameter Economics

1 MW of Geothermal Produces ~8500 MWh p.a.

Renewable Act PPA at $ 120/MW ~1 million revenue per year

Operating and Maintenance Cost $30/MW

Pre-tax Equity Cash Flow ~765K/MW p.a.

Annual Total Pre-tax Cash Flow (for a net 30 MW plant) $23 million

Annual After Tax Cash Flow (assuming tax rate of 35%) $14.9 million


Good Support For Geothermal Globally

There is growing support for geothermal development globally and as pointed out in the

Industry Overview section, governments all over the world have set aggressive targets for

renewable energy as a proportion of total energy in the near term. With oil prices

breaching the century mark, geothermal systems along with other renewable energy

sources have become increasingly viable. Governments are also providing support, in

terms of attractive PPAs and tax breaks, which further lifts the after-tax cash flows of

geothermal developers.

There Can Be Further Upside from Djibouti

One of the most exciting events in the past year for EHR was the addition of the Fiale

geothermal development in its portfolio. At 150 MW this project is five times the size of the

Copahue project. This catapults the company into the upper echelons of independent

geothermal producers.

15


Exhibit 11 : Djibouti


The Republic of Djibouti is a small, stable African country with a population of under 1

million. The country hosts a number of international military bases and is entirely reliant on

diesel for power generation. The cost of the diesel is about $ 24 cents/KWh, or about $

240/MWh, which augurs well for geothermal development. Located in the Lake Assal

region of Djibouti, the Fiale Project is considered to be one of the most strategic

geothermal opportunities within the Africa Rift Valley. Lake Assal is an area of recent

volcanic activity ascertained from drilling in 1980s and has recently come under intense

focus of international geothermal players. This area is characterized by the presence of

geothermal resources revealed by numerous hot springs found in different parts of the

country.

The Assal drift is tectonically the most active structure in the zone of crustal divergence in

Afar. The Assal area constitutes a typical oceanic-type rift valley with a highly-developed

graben structure displaying axial volcanism. The area is complex in structure because of a

series of active volcanism. Further, the series are generally composed of phyphyritic

basalt formations and hyaloclasites.

There is considerable infrastructure development underway in the country, promoting

additional state and private enterprise which will lift the power demand in the country over

the next 20 years. The power infrastructure operated by EDD is located a short distance

from the Fiale project, a big benefit for rapid commercialization at much lower cost for the

electricity generated. In addition, EHR‟s JV with EDD as the sole provider of retail

electricity services in the country underpins the ability for this project to generate

substantial cash flows for a long period of time.

16


Regional Dynamics in East Africa Are Positive

The African Energy Commission estimates the potential geothermal capacity in East Africa

to be over 10,000 MW, with Djibuti having a potential capacity of between 230 MW and

860 MW. In addition, East Africa is energy deficient with only 5-10% rural households

having access to electricity. So far only Kenya (167 MW) and Ethiopia (7.2 MW) use

geothermal energy in East Africa. Thus, there are plenty of untapped geothermal

opportunities in this region.

In line with its objective to invest into mature projects with lower risk profile, EHR

announced entry into Africa in August 2010. Besides Djibouti, the company is also looking

at Botswana and Kenya where regional dynamics for geothermal development are very

attractive. Kenya is the most-advanced geothermal province in Africa with low sovereign

risk and availability of funding for project financing. On the other hand, Botswana has

consistently ranked among one of the top African investment destinations. Another

catalyst is low domestic energy supplies despite abundant supply of coal.

Exhibit 12 : Rift Valley


Further, the demand for electricity is robust in these countries due to improving economic

conditions, rising population and a lack of conventional sources all of which bodes well for

strong growth for the renewable sector in the region.

17


Exhibit 13 : Change in Demand for Electricity (2009)


Given the energy-deficient nature of the African economies, there is considerable

opportunity for EHR to build on its Fiale project in Djibouti. EHR believes that there is

significant potential to develop the resources in the East African Rift Valley countries.

Exhibit 14 : Potential in Africa


Low Risk Profile

The risk profile of EHR is quite low compared to other players in the geothermal sector.

Below are the some of the key differences between the Copahue project and Australian

geothermal systems:

Reservoirs in Argentina are dry-steam dominated unlike that in Australia, which

eliminates the need to inject fluids artificially to sustain production

In Argentina, reservoirs exist naturally, while in Australia, hot-dry rock projects require

a reservoir to be created

The total depth for primary target in the Copahue project is 1,400 meters, whereas in

Australia typical depth for wells are between 3,000 meters and 5,000 meters

Drilling cost for the Copahue project is expected to be between $1.7 million and $3

million. In Australia, drilling costs for hot-dry rock type ranges from $14-25 million

0%

2%

4%

6%

8%

10%

12%

14%

Djibouti Kenya Tanzania Uganda Zambia Rwanda Burundi

18


The Copahue project has produced steam historically and thus is sustainable, which

drastically reduces the uncertainty regarding the timing and extent of revenue for

similar exploration projects in Australia

There is no equivalent volcanic geothermal project in Australia like the one in

Argentina

Exhibit 15 : Development Stage In A Typical Geothermal Project


There are three stages in a typical geothermal development project:

Confirmation Stage: Geothermal reservoirs are typically discovered by accident

through mineral exploration or by visible surface evidence such as hot pools or

geysers. Exploratory slim-hole wells are drilled to map such reservoirs. The

confirmation stage ends with an independent consultant‟s report verifying the

existence of the reservoir and the minimum capacity it can support

Drilling and Feasibility Study Stage: At least three production wells are drilled in

this stage. These are 12 inches in diameter and 500 -3,000 meters deep. Drilling of a

well costs anywhere between $3 million and $6 million. This stage ends with a

feasibility study conducted by independent consultants. The study defines the map,

size and flow rates more practically and adds an economic feasibility assessment

Construction Stage: A first positive feasibility study is the first domino that enables

permitting, which then enables a long-term PPA with the local grid operator, thus

enabling debt and equity financing. A geothermal plant will normally take 18 months to

start power generation after the completion of the drilling process

EHR is well ahead of its peers in terms of the progress on the first two stages. It already

has signed a power purchase agreement, is discussing financing options with different

parties and has even forecast the expected cash flows from the Copahue project.

Confirmation stage

Drilling and Feasibility Study

Construction Stage

EHR's projects have already made significant progress across these stages

19


Strategic Investment Provides Comfort

The A$5 million investment by Socius Capital provides significant comfort and reinforces

prospective investors‟ belief in the company‟s prospects. The investment has been at

market price and not at a discount; hence there is no equity dilution. In addition, Socius

benefits only if the market price rises and would have conducted its due-diligence before

investing in EHR. The company is fully funded at this stage to complete a concept study

and pre-feasibility assessment on the Copahue project and the investment has

transformed EHR into a development company from an exploration company.

SWOT of Earth Heat Resources Limited

Strengths

The acquisition of Earth Heat Limited has proved to be fruitful for the company as

evident in the award of the Fiale project in Djibouti

Copahue project with Geothermal One Inc. will provide significant cash flows in the

near term

Highly-experienced management team with history in subsurface development

Full historic feasibility study; 4 deep wells; shallow, very high temperatures (235 °C at

600 meters); transmission lines within 30m of old pilot plant; and attractive guaranteed

off-take pricing

The Fiale project has shown excellent results during the drilling phase with very high

temperatures

Weaknesses

The company has not yet turned operationally profitable. Income for the last years

was driven by one-off sale of an asset in the US

The company has not operated a geothermal plant, especially a large plant like Fiale

historically

Opportunity

There is considerable scope of New Energy including geothermal energy in the

emerging economies which are energy deficient and haven‟t developed conventional

energy to a large scale

Governments globally are providing an impetus to develop greener technologies for

reducing reliance on conventional energy sources and move towards more

environment-friendly sources

Regional dynamics in East Africa are very positive

Threat

Inability to raise capital for financing exploration activities

As the company has not yet operated a geothermal plant, it may face operational

problems which can drive up costs and reduce or erode profits

A reduction in prices of conventional or non-conventional alternate energy sources

can make geothermal development unviable

20


Latest Financial Results

Exhibit 16 : Annual Income Statements

Australian $ Year Ended

June 30, 2009

Year Ended

June 30, 2010 YoY%

Revenue 2,068 -

Directors‟ fees (142,383) 93,399 -165.6%

Debenture interest, discount amortization and accretion (220,993) 134,207 -160.7%

Equipment depreciation (3,027) (1,272) -58.0%

Foreign exchange (loss)/gain 6,895 (268) -103.9%

Interest on loans (56,721) (5,222) -90.8%

Management fees (58,000) (22,000) -62.1%

Office (47,010) (11,128) -76.3%

Professional fees (240,788) (154,455) -35.9%

Insurance - (16,543)

Shareholder costs (34,299) (72,001) 109.9%

Property investigation (39,158) (13,199) -66.3%

Regulatory and filing fees (29,866) (8,658) -71.0%

Salaries and benefits (350,713) 357,807 -202.0%

Travel and promotion (1,325) (49,030) 3600.4%

Profit/(loss) before other items (1,215,320) 231,637 -119.1%

Current asset impairment expense (318,714) -

Reduction in convertible debentures and other liabilities - 2,194,372

Geothermal project expenses written off - (190,180)

Natural gas and petroleum project interests written off (474,235) (119,699) -74.8%

Interest income - 244

Other revenue 101,874 75,000 -26.4%

Income tax expense - -

Income for the year (1,906,395) 2,191,374 -214.9%

Basic eps (in cents) (2.10) 0.90 -142.9%

Diluted eps (in cents) (2.10) 0.89 -142.4%

Source: Company Filings, RB Milestone

As EHR was in development stage during the year, the company did not earn any

revenue. Reduction in convertible debentures and other liabilities of ~$2.2 million resulted

from the disposal of its oil and gas assets in the US, leading to a profit of $2.2 million for

the year.

Valuation & Investment View

We have valued EHR using the Discounted Cash Flow Methodology. We have made

explicit forecasts until 2022 for computing Free Cash Flow to Equity (FCFE), beyond that

we have assumed no terminal growth rate. Below are some of the key assumptions we

have made in our model:

Factored in only the Copahue and Fiale projects in our valuation

Parity between US$ and A$

Copahue project is expected to come online fully by 2015 and we have assumed

uniform progress until then, i.e. 20% completion by 2011, 40% by 2012 and so on

Similarly, we have assumed the Fiale project to fully come online by 2017 and have

forecast similar progress as that for Copahue

Operating cost of $30/MWh

21


Pricing: Copahue - $110/MWh, Djibouti - $100/MWh

Capital Expenditure for Copahue and Djibouti estimated to be $100 million and $500

million, respectively

Debt/Equity ratio of ~60% during the development stage but debt assumed to be fully

paid later

Cost of Equity of 15%

Tax rate of 35%

Below is our valuation for EHR, which comes to $0.226 per share

Exhibit 17 : EHR Valuation

FCFE Valuation for EHR in $ 000

Cost of equity 12.8%

Rf 5.5%

Risk Premium 6.5%

Beta 1.1

Terminal g 0%

PV of terminal value 23,706

Value of equity 128,034.9

Number of shares O/S 566,219.0

Value per share (in cents) 22.61

Current market price (in cents) 5.1

Upside/(downside) 343.4%

Source: RB Milestone, Bloomberg

We also compared the peer valuation for EHR but believe that the comparable valuation

varies considerably primarily due to the different risk profiles of its peers. As mentioned

earlier, EHR‟s risk profile is far more attractive than most of its peers which may explain

why the market accords it a higher multiple on EV/Reserve basis.

Exhibit 18 : Peer Valuation

Name Reserves (in PJ) EV (A$ mn) EV/Reserves

Geodynamics 244,000 25.3 103.8x

Geothermal Resources 84,000 2.8 33.3x

Green Rock Energy 870,000 9.1 10.5x

Greenearth Energy 280,600 3.9 13.8x

Hot Rock 180,000 6.8 37.6x

Kuth Energy 361,000 2.4 6.8x

Panax Geothermal 332,000 14.1 42.6x

Petratherm 230,000 14.9 65.0x

Torrens Energy 780,000 1.5 1.9x

Earth Heat Resources 172,985 26.7 154.5


Finally, we computed the sensitivity of EHR‟s fair value based on different scenarios. We

get a strong upside even in the most bearish of scenarios for the company. Hence we

22


initiate coverage on EHR with a price target of $0.226 per share and an upside potential

343.4%. At current valuation, the downside risk is very limited.

Exhibit 19 : Cost of Equity and Operating Cost


Exhibit 20 : Copahue Sensitivity – Pricing and Cost of Equity


Exhibit 21 : Copahue Sensitivity – Pricing and Capacity


22.6 9% 10% 11% 12% 13% 14% 15% 16% 17%

10 44.97 41.09 37.59 34.41 31.54 28.94 26.57 24.42 22.47

15 41.46 37.87 34.63 31.70 29.04 26.63 24.45 22.46 20.66

20 38.37 35.05 32.05 29.34 26.89 24.66 22.64 20.81 19.14

25 35.29 32.25 29.49 27.00 24.75 22.70 20.85 19.16 17.63

30 32.22 29.44 26.94 24.67 22.61 20.75 19.06 17.52 16.12

35 29.14 26.64 24.38 22.33 20.47 18.79 17.26 15.88 14.61

40 26.07 23.84 21.82 19.99 18.34 16.84 15.47 14.23 13.10

45 23.01 21.05 19.28 17.67 16.22 14.90 13.70 12.60 11.61

50 21.28 19.47 17.83 16.34 15.00 13.77 12.66 11.66 10.74 Op

era

tin

g c

ost

($/M

Wh

)

Cost of Equity

22.6 70 80 90 100 110 120 130 140 150

9% 27.87 28.96 30.04 31.13 32.22 33.30 34.39 35.48 36.57

10% 25.48 26.47 27.46 28.45 29.44 30.43 31.43 32.42 33.41

11% 23.32 24.22 25.13 26.03 26.94 27.84 28.74 29.65 30.55

12% 21.36 22.19 23.02 23.84 24.67 25.49 26.32 27.14 27.97

13% 19.59 20.35 21.10 21.86 22.61 23.37 24.12 24.88 25.63

14% 17.99 18.68 19.37 20.06 20.75 21.44 22.13 22.82 23.51

15% 16.53 17.16 17.79 18.42 19.06 19.69 20.32 20.95 21.59

16% 15.20 15.78 16.36 16.94 17.52 18.10 18.68 19.26 19.84

17% 13.99 14.52 15.06 15.59 16.12 16.65 17.18 17.72 18.25

Pricing $/MWh

Co

st

of

Eq

uity

22.6 70 80 90 100 110 120 130 140 150

10 17.67 17.92 18.17 18.42 18.67 18.92 19.17 19.43 19.68

15 18.15 18.52 18.90 19.28 19.66 20.03 20.41 20.79 21.17

20 18.63 19.13 19.64 20.14 20.64 21.15 21.65 22.15 22.66

25 19.11 19.74 20.37 21.00 21.63 22.26 22.89 23.51 24.14

30 19.59 20.35 21.10 21.86 22.61 23.37 24.12 24.88 25.63

35 20.07 20.96 21.84 22.72 23.60 24.48 25.36 26.24 27.12

40 20.56 21.56 22.57 23.58 24.58 25.59 26.60 27.60 28.61

45 21.04 22.17 23.30 24.44 25.57 26.70 27.83 28.98 30.29

50 21.52 22.78 24.04 25.29 26.55 27.81 29.09 30.57 32.08

Pricing $/MWh

Ca

pa

city (

in M

W)

23


Exhibit 22 : Fiale Sensitivity – Pricing and Cost of Equity


Exhibit 23 : Fiale Sensitivity – Pricing and Capacity


Key Risk Factors

Execution Risk. All of EHR‟s projects are in development stage and thus failure in

planned execution can be a concern

Financing Risk. All the projects need a significant development capital outlay during

their installation. EHR‟s prospects are significantly linked to identifying funding

sources for its projects. Failure to obtain financing as and when needed can impact

the continuation of EHR‟s operations

Regulatory Risk. EHR‟s success will depend to a large extent on regional

government policies, subsidies, tax rebates and other support. For example, the

Copahue project has been a contract at a beneficial rate. Withdrawal of such policies

or introduction of a policy which impacts the geothermal industry can affect the

company‟s prospects

Forecast Risk. Although the company has reasonably assessed the profitability from

its Copahue project including capital outlay, maintenance expenses etc, there is

possibility that the actual costs can be substantially greater than the forecast costs,

which may considerably affect the profitability of the company

Operating Risks. The company may be exposed to several risks such as operational

and technical difficulties encountered in mining including difficulties in commissioning

and operating plant and equipment; mechanical failure or plant breakdown; adverse

weather conditions; industrial and environmental accidents; industrial disputes; and

unexpected shortages or increases in the cost of consumables, spare parts, plant and

equipment

22.6 60 70 80 90 100 110 120 130 140

9% 17.37 20.11 22.81 27.51 32.22 36.93 41.68 47.07 52.52

10% 15.89 18.40 20.87 25.15 29.44 33.74 38.08 43.02 48.03

11% 14.56 16.85 19.11 23.02 26.94 30.86 34.82 39.35 43.96

12% 13.35 15.45 17.52 21.09 24.67 28.25 31.87 36.04 40.29

13% 12.25 14.17 16.08 19.34 22.61 25.89 29.20 33.04 36.95

14% 11.25 13.02 14.77 17.75 20.75 23.75 26.78 30.32 33.93

15% 10.35 11.97 13.58 16.31 19.06 21.80 24.58 27.85 31.18

16% 9.52 11.02 12.49 15.00 17.52 20.04 22.59 25.60 28.68

17% 8.77 10.15 11.51 13.81 16.12 18.43 20.77 23.56 26.40

Pricing $/MWh

Co

st

of

Eq

uity

Pricing/MWh

22.6 60 70 80 90 100 110 120 130 140

80 9.69 10.72 11.76 12.79 13.83 14.84 15.86 17.44 19.18

90 10.05 11.22 12.38 13.55 14.69 15.83 17.61 19.58 21.54

100 10.42 11.71 13.01 14.29 15.56 17.36 19.54 21.72 23.91

110 10.78 12.21 13.63 15.03 16.66 19.06 21.46 23.87 26.27

120 11.15 12.70 14.24 15.76 18.15 20.77 23.39 26.01 28.63

130 11.52 13.20 14.85 16.80 19.64 22.47 25.31 28.15 31.31

140 11.88 13.69 15.46 18.07 21.12 24.18 27.24 30.49 34.13

150 12.25 14.17 16.08 19.34 22.61 25.89 29.20 33.04 36.95

160 12.61 14.66 17.11 20.61 24.10 27.59 31.42 35.60 39.77

Ca

pa

city (

in M

W)

24


Management and Board of Directors

Dr. Raymond Shaw, Chairman

Dr. Raymond Shaw is a geologist and geophysicist with more than 30 years of experience

in the resources and energy sector, including the oil, gas and coal industries. He

commenced his professional career as a petroleum explorationist with Shell Development

Australia in Perth prior to working for various consulting groups, including the Swiss

international consulting firm Petroconsultants SA, for which he served as its resident

director based in Singapore responsible for its Far East operations. He has provided

consultancy to industry, government and international aid agencies on a variety of

resource projects throughout Australia and Asia including the World Bank, Asia

Development Bank and AusAID. Dr. Shaw was the founding Managing Director of Great

Artesian Oil and Gas Limited prior to its listing on the ASX in 2003 until April 2007.

Mr. Torey Marshall, Managing Director

Mr. Torey Marshall is a geologist with broad-based technical and business development

experience in the minerals, petroleum and geothermal sectors. This has resulted in the

successful execution of various exploration programs (some resulting in discoveries) in a

number of different areas. Having worked extensively as an exploration geoscientist, his

skills have been considerably expanded to include senior management experience of

various private and public (unlisted) companies. As part of his consulting practice, he has

developed strategies for, and acquired projects on behalf of a number of clients. He has

assisted a number of private and public companies in building their businesses to enhance

shareholders‟ value such as Phoenix Oil and Gas Limited; Australian Oil Company

Limited; Red Gum Resources Limited; Great Artesian Oil and Gas Limited; and QGC

Limited. He is a director of Red Gum Resources Limited and Polymetalic Exploration Pyt

Limited.

Mr. Alexander Rose-Innes, Executive Director

Mr. Alexander Rose-Innes, a portfolio manager for long/short equities and global macro

funds, has extensive experience in the equity capital markets of Australia. With a strategic

focus on the resources sectors of the ASX, JSE and FTSE markets, Alexander has a deep

knowledge of African politics and business including a wide variety of contacts through his

macroeconomic research that guides investment decisions. Appointed in July 2010, he will

be responsible for Business Development and Finance. Alexander is currently employed

as a Macroeconomic Analyst and Portfolio Manager with Coldstream Investment Holdings

where he maintains a balanced portfolio of equities, derivatives, bonds and commodities.

Previous experience includes Invicta Holdings Pvt Limited in South Africa and Publishing

and Broadcasting Limited.

Mr. Norman J Zillman, Non-Executive Director

Mr Normal Zillman has held positions of Exploration Manager and subsequently Deputy

General Manager of Crusader Limited; General Manager Exploration and Production of

Claremont Petroleum NL and Beach; and manager of the Petroleum Branch of the

Queensland Department of Mines and Energy and State Mining Engineer for Petroleum.

He has also held the position of Regional Manager of Northern Queensland for the

Department of Mines and Energy based in Charters Towers where he supervised all

aspects of mineral exploration and mining activities in that region. He has held a wide

variety of public company positions including foundation Managing Director of Queensland

Gas Company Limited; foundation Chairman of Great Artesian Oil and Gas Limited;

Chairman of China Yunnan Copper Limited; Director of Planet Gas Limited; non-executive

Chairman of Blue Energy Limited; and non-executive Chairman of Hot Rocks Limited. Mr

Zillman is a member of the Australasian Institute of Mining and Metallurgy and the

Petroleum Exploration Society of Australia.

25


Mr. David Sutton, Independent Non-Executive Director

Mr. David Sutton has many years of experience as a director of companies in stock

broking and investment banking under his belt. He is a director of Dayton Way Financial

Pvt Limited as well as two listed companies, Sinovus Mining Limited and Imperial

Corporation Limited. He is a former director of Martin Place Securities Pvt Limited.

Mr. Stephen Pearce, Non-Executive Director

Mr. Pearce is a practicing lawyer who specializes in corporate and securities work in

Vancouver, British Columbia. Stephen serves as a director and/or officer of the following

mainly resource-related public companies: Neodym Technologies Inc. (NEX–V) (Director,

Corporate Secretary); Sable Resources Limited (TSX–V) (Director, Corporate Secretary);

Flying A Petroleum Limited (TSX-V); Sunorca Development Corp. (CSNX); and Golden

Goliath Resources Limited (TSX–V) (Director, Corporate Secretary). Stephen has a law

degree from the University of British Columbia and economics degree from York

University.

26


Disclaimer

Some of the information in this report relates to future events or future business and financial

performance. Such statements constitute forward-looking information within the meaning of

the Private Securities Litigation Act of 1995. Such statements can be only predictions and the

actual events or results may differ from those discussed due to, among other things, the risks

described in „Earth Heat Resources Limited' company reports. The content of this report with

respect to Earth Heat Resources Limited has been compiled primarily from information

available to the public released by Earth Heat Resources Limited through news releases and

ASX filings on the Australian Stock Exchange. Earth Heat Resources Limited is solely

responsible for the accuracy of that information. Information as to other companies has been

prepared from publicly available information and has not been independently verified by Earth

Heat Resources Limited or RB Milestone Group (RBMG). Certain summaries of scientific

activities and outcomes have been condensed to aid the reader in gaining a general

understanding. For more complete information about Earth Heat Resources Limited, the

reader is directed to the Company's website at www.earthheat.com.au. This report is

published solely for information purposes and is not to be construed as an offer to sell or the

solicitation of an offer to buy any security in any state. Past performance does not guarantee

future performance. This report is not to be copied, transmitted, displayed, distributed (for

compensation or otherwise), or altered in any way without RBMG's prior written consent.

RBMG is not compensated for any analytical research and evaluation services that are

performed for Earth Heat Resources Limited but RBMG has received cash compensation

(under twenty thousand US dollars) in exchange for other segregated services.

djibouti rb milestone-ehr-initial-valuation-report1

Documents

copahue geothermal project

copahue project

fiale projects

pilot project

fiale djibouti projects

valuing ehr

copahue argentina

geothermal focus