Geothermal Energy in Australia by xld14276

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									Geothermal Energy in Australia
Two geothermal systems under development
                                                                                                                                                                         NCC

15 June 2009                                          Summary
                                                      Two geothermal systems are under development in Australia with very
                                                      different characteristics. Hot Sedimentary Aquifer (HSA) systems offer the
                                                      advantages of being lower risk and faster to market than Enhanced
                                                      Geothermal Systems (EGS). It is a race to market for the emerging
                                                      renewable energy options - geothermal, wave and solar thermal. The
                                                      technology which can break through and demonstrate commerciality is
                                                      likely to take the bulk of the remaining renewable electricity certificates, at
Jenny Cosgrove                                        the expense of slower to market options and enhancing investment returns
+61 7 3212 1389                                       for early investors.
Jenny.Cosgrove@wilsonhtm.com.au
                                                      Key Points
John Young
                                                             Australia is one of a group of countries, including India, Hungary, Germany
+61 3 9640 3846
John.Young@wilsonhtm.com.au
                                                             and China that have a limited conventional volcanic geothermal resource
                                                             potential, but are exploring low-temperature and EGS opportunities.
                                                             Geothermal power has merit as a form of renewable energy because it is
                                                             base load and is scalable.
                                                             Two geothermal systems are under development in Australia.            Hot
                                                             Sedimentary Aquifer (HSA) geothermal systems under development by
                                                             PAX, HRL, and GER are in our view a lower risk and faster to market option
                                                             than Enhanced Geothermal Systems (EGS) being developed by GDY, PTR,
                                                             GHT, TEY, KEN, GRK.
                                                             Both geothermal systems are at a very early stage of development and are
                                                             commercially unproven in Australia. HSA operates commercially in the
                                                             United States but at shallower depths than is proposed for Australia and
                                                             Germany is progressing commercialisation of deep HSA for power
                                                             production. The main risk to the economic development of HSA in Australia
                                                             is sufficient permeability in the reservoir to achieve required flow rates.
                                                             Risks for EGS include depth of drilling, development and capacity of an
                                                             engineered reservoir to support commercial scale power production and
                                                             managing high pressure geothermal water at surface.
                                                             In our view it is too early to be able to assess the cost of production for
                                                             geothermal power with a high level of certainty. Estimates range from A$90-
                                                             145/MWh at demonstration stage and A$80-A$120/MWh at commercial
                                                             stage. Renewable energy prices have historically been ~A$80/MWh.
                                                             Recently new contracts have been signed at A$100/MWh.                Market
                                                             participants are expecting prices to move to A$120-130/MWh.
                                                             We look at the key factors determining the cost of production - power output
                                                             (dependent on input temperature, reinjection temperature, ambient
                                                             temperature and flow rate); parasitic load (expected to be ~30%+), capacity
                                                             factor (>90%, base load); capital costs (drilling, plant and transmission
                                                             costs); operating costs; cost of capital and project life.
                                                             We explain the licensing of geothermal tenements and compare geothermal
                                                             reserve and resource definitions (established in 2008 through the
                                                             “Geothermal Reporting Code”) with mineral and petroleum definitions.
                                                             Share price drivers for geothermal developers will be reserve and resource
                                                             assessments/upgrades (e.g. Geodynamics drilling and results from the
                                                             Weatherford rig drilling for Petratherm from June 09 and Panax from Sept.
                                                             09), achieving project milestones, the attainment of grants (demonstration
                                                             project grants awarded Aug/Sept 09 and drilling grants (round 2) awarded
                                                             Oct/Nov 09), and farmin from credible large scale partners.




Equities Research – Geothermal Energy in Australia                                                                                                                                1
 Issued by Wilson HTM Ltd ABN 68 010 529 665 - Australian Financial Services Licence No 238375 and should be read in conjunction with the disclosures/disclaimer in this report
                                                                                                                                                                                                                    15 June 2009


ASX listed geothermal company data

                                                                                               Number                                                                            Equity
 Company                                   Code         WHTM             Last Price              of               Mkt Cap               Debt                          Cash    raised since   EV           Areas          Geothermal
                                                        Rating           11-Jun-09             shares                                 31-Dec-08                     30-Mar-09 30-Mar-09                                   System
                                                                                $                   M                  $M                    $M                        $M          $M        $M                             Type
 GeoDynamics                                GDY             NR               102                   290                 296                        0                   122          0         173   SA/NSW                   EGS
 Panax Geothermal                              PAX          NR                 18                  182                  32                        0                     6          0         26    SA/India/Kyrg.           HSA
 Petratherm                                    PTR          NR                 35                   58                  20                        0                     4          7          9    SA/Spain                 EGS
 Geothermal Resources                          GHT          NR                 32                   33                  11                        0                     1          0         10    SA                       EGS
 Torrens Energy                                TEY          NR                 20                   46                   9                        0                     6          0          3    SA                       EGS
 Green Rock Energy                         GRK              NR                  5                  180                   9                        0                     1          0          7    SA, NSW, Hungary         EGS
 Greenearth Energy                          GER             NR                 13                   50                   7                        0                     6          0          0    Victoria              HSA & ESG
 Hot Rock                                      HRL          NR                 10                   70                   7                        0                     3          3          2    Victoria, Germany        HSA
 KUTh Energy                                   KEN          NR                 14                   30                   4                        0                     2          0          2    Tasmania                 ESG
ESG - Enhanced Geothermal System                                         HSA - Hot Sedimentary Acquifier                                                        SA - South Australia
Source: Wilson HTM, IRESS


ASX listed geothermal company descriptions
                                                                            Stage of
                                           Date                          development of                   Distance to
                        Company           Listed            Code            resource                     transmission                                                         Description
                                                                                                                                     Has the most advanced geothermal project in Australia. 1MWe pilot power plant
 GeoDynamics                                                GDY             Advanced                              Far                constructed ready for commissioning and resource testing if well failure can be remedied.
                                         Sep-02                                                                                      It aims to build a 50MWe power station based on 9 wells by 2012.
                                                                                                                                     Diversified international HSA projects: Limestone Coast (100%), South Australia and has
 Panax Geothermal                                           PAX            Intemediate                           Close
                                          Jun-07                                                                                     options in India, Kyrgyzstan and Slovakia.
                                                                                                                                     JV with Beach Petroleum and TRUenergy in EGS Paralana Project in South Australia. Has
 Petratherm                                                 PTR            Intermediate                       Medium
                                         Jul-04                                                                                      a hydrothermal project in Spain.
 Geothermal Resources                    Mar-06             GHT Early/Intermediate                               Close               Has two EGS projects in South Australia.
                                                                                                                                     JV with AGL on a 50/50 participating interest basis. Has 5 GELs in Torrens, 4 GELs in
 Torrens Energy                                             TEY                 Early                            Close
                                         Mar-07                                                                                      Adelaide and 4 GELs in Barossa-Clare Project.
                                                                                                                                     Formed by Lakes Oil, Victoria Petroleum and private investors. Has 3 permits in Victoria.
 Greenearth Energy                                          GER                 Early                            Close
                                         Feb-08
                                                                                                                                     Exploration and development of EGS in Olympic Dam (100%) in the Cooper Basin, SA,
 Green Rock Energy                                          GRK                 Early                            Close
                                         Dec-03                                                                                      Perth Basin (up to 100%), Upper Spencer Gulf (100%), SA and Hungary (50%).
                                                                                                                                     Tasmania EGS project (100%) and 2 EPGs in Queensland. Interest in conventional
 KUTh Energy                                                KEN                 Early                            Close
                                         Sep-07                                                                                      geothermal projects in the SW Pacific.
                                                                                                                                     Has 5 GEPs in VIC and exploring for sedimentary geothermal resources for electricity
 Hot Rock                                                   HRL                 Early                            Close
                          Nov-07                                                                                                     generation in Otway Basin. 1 EPG in Queensland. 1 GDP in South Australia.
 HFR - Hot Fractured Rocks HSA - Hot Sedimentary Aquifer
 GEL - Geothermal Exploration Licence GEP - Geothermal Exploration Permits EPG - Exploration Permit Geothermal

Source: Wilson HTM, company data

Geothermal market capitalization

                  520

                  480

                  440

                  400

                  360

                  320
 Mkt Cap. (A$M)




                  280

                  240

                  200

                  160

                  120

                  80

                  40

                   0
                          2002    2003   2004        2005         2006      End Q2 2007   End Q4 2007   End Q2 2008   End Q4 2008   End Q1 2009       29 May 2009
           Mkt Cap.       18       62    158         206           193         305           508           513           380           388               418
           % change       0%      239%   155%        31%          -6%          58%           66%            1%           -26%           2%               -19%




Source: Wilson HTM, IRESS


Equities Research – Geothermal Energy in Australia                                                                                                                                                                             2
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Table of Contents

Valuation of Geothermal Developers ..............................................................................................................................4

   Reserve multiples ............................................................................................................................................................4
   Discounted cash flow (DCF) valuations...........................................................................................................................5
   Multiple analysis...............................................................................................................................................................5

Types of Geothermal Power .............................................................................................................................................6

   Volcanic............................................................................................................................................................................6
   Hot Sedimentary Aquifers (HSA) .....................................................................................................................................6
   Enhanced Geothermal Systems (EGS) ...........................................................................................................................7
   Energy conversion for geothermal power ........................................................................................................................8

Economics of geothermal power production ...............................................................................................................10

   The cost of production of geothermal power – key factors............................................................................................10
   Power output ..................................................................................................................................................................11
   Capital costs...................................................................................................................................................................12
   Operating costs ..............................................................................................................................................................14
   Sensitivity of long run marginal cost to construction cost and parasitic load.................................................................14
   Risks ..............................................................................................................................................................................15
   BOX: How to calculate the power output based on temperature and flow rate.............................................................16

Market for geothermal power production .....................................................................................................................17

   The legislation ................................................................................................................................................................17
   Scale of the build-out to meet the legislation’s targets ..................................................................................................18
   Size of the subsidy created by legislation......................................................................................................................19
   Grants available to geothermal development in Australia .............................................................................................20

Status of geothermal power in Australia ......................................................................................................................21

   Parallels to coal seam methane.....................................................................................................................................21
   Path to development ......................................................................................................................................................22
   International EGS development .....................................................................................................................................23
   International HSA development .....................................................................................................................................23

Licensing of geothermal tenements ..............................................................................................................................24

Geothermal reserves and resources .............................................................................................................................26

   Geothermal Code...........................................................................................................................................................26
   Mineral resources and ore reserves (JORC Code) .......................................................................................................26
   Petroleum reserves and resources................................................................................................................................26

Company Summaries......................................................................................................................................................28

Appendix 1: Reserve and resource definition ..............................................................................................................45

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                                                    Valuation of Geothermal Developers
                                                    There are 9 geothermal developers listed on the ASX with market capitalisation
                                                    between A$3M and A$300M. All the geothermal developers are either securing
                                                    tenements or evaluating resources with the exception of Geodynamics who has
                                                    achieved proof of concept (which shows that a heat source is available and that a
                                                    flow can be established).
                                                    As the companies move through proof of concept into pilot and demonstration
                                                    power plants we would expect the market to value the geothermal developers using
                                                    reserve multiples and then discounted cash flows for identified projects. As the
                                                    companies move through to production valuation based on capacity, production and
                                                    cash flow multiples may become appropriate, including Enterprise Value (EV) /
                                                    Megawatt (MW), EV/ Megawatt hour (MWh) and EV/EBITDA.

                                                    Reserve Multiples
                                                    Proving up resources and reserves will be important share price catalysts for the
                                                    geothermal developers in the early stages. We discuss the geothermal resource
                                                    categorisation later in this report. The categories are resources - inferred, indicated
                                                    and measured - and reserves - probable (~50%) and proven (~90%). Only two of
                                                    the listed companies (GDY and PAX) have established “Measured Geothermal
                                                    Resources.” The other companies are at “Inferred Geothermal Resources” at this
                                                    stage.
                                                    We show the current geothermal resource positions in the table below with the
                                                    associated EV/resource multiples, though they are not particularly meaningful at this
                                                    stage.

Geothermal companies resources
 Company                        ASX code Market cap      EV                Geothermal Resources                                       Multiples
                                                                Measured   Indicated   Inferred                EV/Measured   EV/Indicated    EV/Inferred   EV/Total
 11 June 2009                               (A$m)                 (PJ)        (PJ)       (PJ)     Total (PJ)      ($/PJ)        ($/PJ)          ($/PJ)      ($/PJ)
 Geodynamics Limited              GDY       295.9       173.9     1,800      7,600     235,280     244,680       96,595         22,878          739          711
 Panax Geothermal Limited         PAX       31.9        25.7     11,000     32,000     289,000     332,000        2,333          802            89           77
 Petratherm Ltd                   PTR       22.7        13.3        0          0       230,000     230,000         na             na            58           58
 Geothermal Resources Limited     GHT       10.6         9.2        0          0          0           0            na             na            na           na
 Torrens Energy Limited           TEY       10.9         4.5        0          0       780,000     780,000         na             na             6            6
 Green Rock Energy Limited        GRK        8.8         7.4        0          0       120,000     120,000         na             na            62           62
 Greenearth Energy Limited        GER        6.5         1.0        0          0       263,600     263,600         na             na             4            4
 KUTh Energy Limited              KEN        4.3         2.0        0          0          0           0            na             na            na           na
 Hot Rock Limited                 HRL        3.2         0.6        0          0          0           0            na             na            na           na
Source: Wilson HTM, IRESS




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                                      Discounted Cash Flow (DCF) Valuations
                                      Discounted cash flow valuations are in our view the best way to value geothermal
                                      power projects. Ultimately we would expect these projects to generate a cash flow
                                      profile that is long term and predictable with a high level of upfront capital
                                      expenditure.
                                      We would expect to introduce DCF valuations for the geothermal developers once
                                      there is a reasonable basis for the DCF assumptions. A DCF is appropriate when
                                      there is a reliable capital expenditure estimate, a market for the output and a view
                                      that the project is reasonably likely to proceed. The DCF may be risk weighted to
                                      reflect a view on technical and commercial maturity.

                                      Multiple Analysis
                                      Conventional power developers (known as independent power producers (IPPs))
                                      are assessed based on their EV to installed capacity, capacity under construction
                                      and capacity under development. We would expect to adopt a similar multiple
                                      analysis for the geothermal developers using the metrics of MW and MWh. We
                                      would expect EV/MW for installed capacity to be in line with or above (if the rate of
                                      return on capital is high) replacement costs. EV/MW of capacity under development
                                      would be a fraction of construction cost with that fraction dependent on the stage of
                                      development (environmental approval, grid connected, etc).
                                      For example, wind power in Australia has a replacement cost of $2.5-3 M/MW.
                                      When a stock trades below this EV/MW industry benchmark it may be a signal of an
                                      undervalued share price.
                                      As the geothermal developers achieve production EV/EBITDA multiples will become
                                      applicable.




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                                      Types of Geothermal Power
                                      Geothermal energy is the heat source from inside of the earth.           Geothermal
                                      resources require three basic components:

                                            •    a heat source,

                                            •    an aquifer of permeable rock, containing recoverable water, and

                                            •    an impermeable cap rock to seal the aquifer.

                                      Geothermal energy is usually tapped by drilling into the aquifer and extracting hot
                                      water or steam (if temperatures are sufficiently high).
                                      The three geothermal models are volcanic, hot sedimentary aquifers and enhanced
                                      geothermal systems, as shown in the figure below. The geothermal systems under
                                      development in Australia fall into the categories of hot sedimentary aquifers and
                                      enhanced geothermal systems. HSA is proven at shallow depths in the United
                                      States. In Germany HSA at similar depths to Australia is proven for district heating
                                      and is under development for power production. HSA is yet to be commercially
                                      proven in Australia. EGS have yet to be commercially proven at any greater scale
                                      than a 2.5MWe project in Germany.

                                      Types of Geothermal Models




                                      Source: HotRock Limited, June 2009


                                      Volcanic
                                      Volcanic or conventional geothermal systems are associated with active or dormant
                                      volcanic provinces underlain by large hot intrusive magma bodies which provide a
                                      high grade shallow heat source. Around 10,000MW of conventional geothermal
                                      systems are installed globally, with the United States, the Philippines and Indonesia
                                      the largest by installed capacity.

                                      Hot Sedimentary Aquifers (HSA)
                                      Three of the Australian geothermal companies, Panax, Hot Rocks and Greenearth
                                      Energy, are aiming to demonstrate that a volcanic province is not essential for the
                                      generation of power from geothermal energy. They are developing geothermal
                                      reservoirs in deep sedimentary basins with underlying crustal heat sources, high
                                      heat flows and overlying insulators.
                                      As shown in the figure above production is achieved by producing hot brine up
                                      production wells, extracting the thermal energy and then re-injecting the same
                                      volume of cooler brine down injection wells. HSA reservoirs are naturally
                                      permeable and already contain hot geothermal water in-place within rock pores and
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                                                                                                                 15 June 2009

                                      fractures. A binary cycle geothermal power plant at surface converts the extracted
                                      thermal energy to power.
                                      Features of HSA are lower temperatures, higher flow rates and typically shallower
                                      depths compared to EGS.

                                      Enhanced Geothermal Systems (EGS)
                                      EGS systems are normally associated with granites that contain anomalously high
                                      concentrations of the naturally radioactive elements uranium (U), thorium (Th) and
                                      potassium (K). The radioactive decay of these elements over million of years
                                      generates heat which is trapped when the granites become buried by insulating
                                      sediments. Over millions of years high temperatures (e.g. >270oC) gradually
                                      develop within the granites beneath the insulating cover.
                                      These granites do not generally have a natural system of permeable water filled
                                      fractures or faults. Only when connected fractures in the reservoir are created can
                                      water be introduced into and flow through the reservoir, between a reinjection to
                                      production well, to “sweep” heat from the reservoir to surface. Using techniques
                                      borrowed from the oil and gas industry the EGS concept is to pump cold water into
                                      the hot dry rock to create predictable fractures that will allow a large volume of fluid
                                      to move between wells without allowing the fluid to drain out of the engineered
                                      reservoir. Although proof of concept has been achieved in creating fractures in
                                      granites and in establishing limited flow through reservoirs over quite long flow
                                      distances (of several kilometres) but at low flow rates, it has not yet been proven
                                      that artificial well stimulation can be achieved to support commercial production.
                                      The simplest EGS power plant comprises one injection well and one or more likely
                                      two production wells. Cold water is pumped under pressure down an injection well
                                      where it flows through an engineered reservoir or underground heat exchanger and
                                      is returned to the surface through the production well(s). A binary cycle geothermal
                                      power plant then converts the extracted thermal energy into electricity.
                                      Features of EGS are higher temperatures, lesser permeability, lower flow rates and
                                      greater depths compared to HSA.

                                      How enhanced geothermal power is produced




                                      Source: Geodynamics




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                                      Energy conversion for geothermal power
                                      High temperature conventional geothermal systems (>205oC) generally use steam
                                      as the primary energy source, which requires a flash based geothermal power plant.
                                      This cooled down brine can subsequently be used for further power generation in a
                                      binary geothermal power plant (e.g. Waireki, New Zealand).
                                      The geothermal systems under development in Australia will use water not steam
                                      as the medium for transferring geothermal heat to the surface from the underground
                                      energy sources and a binary power plant will be used for energy conversion.
                                      Binary plants use a secondary working fluid that has a low boiling point and high
                                      vapour pressure at low temperature. The secondary fluid is operated through a
                                      Organic Rankine cycle (OCR) power plant. The geothermal fluid transfers heat to
                                      the secondary fluid through heat exchangers, in which the secondary fluid is heated
                                      and vaporises. The vapour produced drives a normal axial flow turbine or scroll
                                      compressor, after which it is then cooled and condensed, and the cycle begins
                                      again. Air or water cooling can be used.
                                      Ormat with a ~90% market share dominates the binary power plant market. United
                                      Technologies Corporation and Atlas Copco have made significant moves to enter
                                      the binary market. A new entrants are Turbine Air Supplies. Elliott Turbines are in
                                      the process re-entering binary power plant manufacturing.
                                      Binary power plants are standard off the shelf technology and are generally
                                      developed in small modular units (of currently between 250kWe and 10 MWe). The
                                      choice of organic fluid and heat exchanger size are optimized for each application
                                      based primarily on the resource temperature.

                                      Geothermal binary power plant




                                      Source: www.GreenRock.com .au

                                      Kalina System
                                      A recent variation on the binary plant is the Kalina scheme. The Kalina power cycle
                                      is claimed to be a more thermodynamically efficient technology for converting mid-
                                      low temperature heat sources into electricity. Simply the Kalina cycle is a Organic
                                      Rankine cycle that uses an ammonia-water mixture as its working fluid instead of
                                      organic hydrocarbons used in conventional organic Rankine applications. The
                                      Kalina cycle has almost no commercial operating history in the geothermal industry
                                      outside of two small plants. For this reason we would not expect that Australian
                                      geothermal developers would use the Kalina cycle power plant at this stage.




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Comparative parameters of conventional and enhanced geothermal
  Parameters     Volcanic Geothermal                     Hot sedimentary aquifers (HSA)             Enhanced Geothermal System (EGS)

  Other names    Hydrothermal                            Hydrothermal                               Hot Dry Rock

                 Magmatic                                Sedimentary geothermal                     Conduction Dominated

  Heat storage   Steam and mineralised water (brine)     Heat stored in water (brine) in existing   Heat stored in rocks which need to be
                 contained in existing and naturally     and naturally permeable reservoir          fractured to create a permeable reservoir
                 permeable rock reservoirs               rocks                                      through which water can be pumped to
                                                                                                    extract the heat contained in the rock.

  Well Depth     Normally shallow <3km in volcanic       Targets in Australia range from 2.5 to     3km-6km
                 zones.                                  4 km depth.



  Flow rate      Self discharging with flows of 50 to    Non self discharging wells which           Flows of at least 70 k/sec required for
                 200 kg/s depending on well diameter     require to be pumped to produce flows      commercial exploitation. Best flow rate yet
                 and rock permeability                   of 100 to 200 kg/sec depending on          achieved is < 20 kg/sec
                                                         well diameter and rock permeability.

  Permeability   From both fractures (dominant ) and     Dominantly from primary porosity but       Low
                 primary porosity (subordinate)          best HSA fields also have high fracture
                                                         permeabilities.

  Well costs     Low (e.g. A$5m per well)                Higher – dependent on drill depth e.g.     Highest – e.g. A$15m++ per well
                                                         A$8 to A$12m per well between 3 and
                                                         4 km depth.
                            o                                        o                                          o
  Temperature    200 to 350 C                            100 to 180 C                               >150 to 260 C

  Positives      Long     established   and   proven     Large HSA heat resources located           Large heat resources       located    widely
                 technology      (with 10,000MWe of      throughout Australia; a number of          through Australia
                 capacity globally)                      large systems are located close to
                                                         urban and industrial loads and             Proof of concept has been achieved by
                 High well flow rates with high energy   transmission networks                      Geodynamics in the Cooper Basin and a
                 content (high temperature water and                                                1MWe pilot plant has been built but not yet
                 steam)                                  Naturally permeable systems –              commissioned due to a production well
                                                         reservoir fracturing with uncertain        failure
                 Self    sustaining   production  and    outcomes is not required
                 injection well flows obtained without                                              Low well flows but with high energy
                 pumping                                 Near zero CO2 emissions                    content

                 Low CO2 emissions relative to fossil    No problem with mineral scaling due to     Near zero CO2 emissions
                                                                                            o
                 fuel power                              HSA brine being less than 180 C
                                                         above which both silica and calcite        Scalable.
                 Lower cost                              scaling can be issues

                 Scalable                                Scalable.

  Negatives      Limited resources; none known in        Significant parasitic power requirement    Capability of fracturing to support
                 Australia                               loads from a combination of binary         commercial scale geothermal power
                                                         cycle power plant and production well      generation has yet to be demonstrated.
                 Susceptible to mineral scaling, from    pumping loads.
                 both silica and calcite above 180C                                                 High parasitic power requirements for
                                                                                                    pumping water through injection wells to
                                                                                                    production wells, against high reservoir
                                                                                                    permeability resistance (impedance).

                                                                                                    Stimulated reservoirs may with time show
                                                                                                    local heat depletion around fracture
                                                                                                    channels, leading to reduction in power
                                                                                                    plant output

                                                                                                    Risks in dealing with high pressure
                                                                                                    geothermal water at surface.

                                                                                                    Susceptible to scaling from both silica and
                                                                                                    calcite minerals above temperatures of
                                                                                                    180C.

                                                                                                    Some EGS locations are located long
                                                                                                    distances from transmission grids.

Source: Wilson HTM




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                                      Economics of geothermal power production
                                      In our view it is too early to be able to assess the cost of production from
                                      geothermal in Australia with a high level of certainty.
                                      The table below summarises the published estimates for the cost of geothermal
                                      power production in Australia. These estimates are generally not independent and
                                      given the early stage of development are subject to substantial variation. Panax’
                                      pre-feasibility study for the Penola Project has provided by far the most detail and
                                      this report is well worth reviewing. We note however that the estimates in the
                                      Panax report focus on total cost per MWh generated and does not consider the cost
                                      of capital.

                                      Estimates of cost of Australian geothermal power production (A$/MWh)
                                                            1. Australian          2. Electricity Supply     3. Geodynamics'
                                                          Geothermal Energy         Industry Planning        Economic Study
                                      Source                 Association                  Council                  2008           4. Panex Geothermal
                                      Date                       Aug-08                   Jun-05                   Aug-08                 Mar-09
                                      Size of plant
                                      <10MW, pilot                 150                                                                      79
                                      10-50MW                      105                                                                      65
                                      >50MW                         90                    70-130                     72                     63

                                      Source: 1. Installed capacity and generation from geothermal sources by 2020, August 2008, MMA 3. Electricity Supply
                                      Industry Planning Council, June 2005 3. Geodynamics Presentations 4.. Penola Project Pre-Feasibility Study for Hot
                                      Sedimentary Aquifer and does not including return on capital

                                      To reflect the uncertainty of forecasts McLennan Magasanik Associates (MMA), in
                                      its report commissioned by the Australian Geothermal Energy Association, provides
                                      a range for the generation cost of geothermal as A$90-A$145/MWh at
                                      demonstration stage and A$80-A$120/MWh at commercial stage.
                                      A recent report on Global Geothermal Markets and Strategies by Emerging Energy
                                      Research put the expected EGS cost (in the United States environment) in the
                                      range of US$0.12/kWh (A$150/MWh) to US$0.20/kWh (A$250/MWh), dependent
                                      on how deep the resource is, and assuming wells are drilled successfully. Detailed
                                      assumptions behind these estimates were not provided but they are significantly
                                      higher than the Australian estimates shown in the table above.

                                      The cost of production of geothermal power – key factors
                                      In this section we discuss the factors that will determine the economics to provide a
                                      level of understanding of the key drivers. We also emphasize that the economics of
                                      HSA and EGS are likely to differ. The cost of production of geothermal power will
                                      depend on:
                                           •     Power output - Dependent on input temperature, reinjection temperature,
                                                 ambient temperature and flow rate.
                                           •     Parasitic load – Parasitic load is the energy used in the process of power
                                                 production. Binary power plants operate with basic parasitic loads of ~12-
                                                 15%. Additional to this is the parasitic load required for pumping
                                                 geothermal water from production wells and back into injection wells. HSA
                                                 will need to pump from the production well to create the desired flow rate.
                                                 EGS will need to pump water into the injection well at sufficient pressure to
                                                 overcome reservoir impedance to create sufficient flow through the
                                                 engineered reservoir. Panax (using HSA) have indicated a total parasitic
                                                 load of 33% of the gross power generated.
                                           •     Capacity factor - Base load with a capacity factor of >95%.
                                           •     Capital costs – drilling, plant and transmission costs. Other more minor
                                                 capital costs will include the civil works, well pad development, tie-
                                                 in/gathering lines, in some cases evaporation pond, land acquisition,
                                                 feasibility study.
                                           •     Operating costs, cost of capital and project life.

Equities Research – Geothermal Energy in Australia                                                                                                       10
                                                                                                               15 June 2009


                                      Power output
                                      Inlet Temperature
                                      The temperature of the geofluid is the most important parameter in determining the
                                      efficiency for converting thermal energy to electricity. The greater the depth the
                                      higher the temperature and thus the greater the plant output in MW. The standard
                                      temperature gradient in the Earth’s crust is approximately 25ºC/km, although a
                                      gradient of as much as 50-60ºC/km has been measured in the Cooper Basin.
                                      Geodynamics show the relationship in the figure below.

                                      Relationship between depth and temperature




                                      Source: Geodynamics

                                      Conversion Efficiency
                                      The efficiency at which an organic Rankine cycle binary power plant can convert
                                      thermal heat to mechanical energy and then electrical power is known as the
                                      conversion efficiency. This depends closely on the temperature of the inlet
                                      geothermal water, and the ambient atmospheric temperature. As is shown in the
                                      figure below (in feature box on page 14) conversion efficiency is strongly influenced
                                      by the temperature of the inlet geothermal water and ranges from around 8% at
                                      100oC to around 16% at 200oC. Clearly, the higher the inlet geothermal
                                      temperature the more efficient the power plant. Some ORC plants have an upper
                                      working temperature limit the such as those produced by UTC which are suitable up
                                      to 150o C only. Usefully, this is an optimal range for HSA projects in Australia
                                      Exhaust temperature
                                      The exhaust temperature is the temperature the waste or “spent” geothermal fluid is
                                      exhausted from the power plant. Heat exchangers after the geothermal heat has
                                      been transferred to the secondary working fluid in the organic Rankine cycle. The
                                      lower the exhaust temperature, the higher the temperature “take” and the higher the
                                      thermal output. This determines how much energy as heat is available to the binary
                                      power plant. The waste fluid from the power plant is piped to reinjection wells thus
                                      for practical purposes the reinjection temperature is the same as the exhaust
                                      temperature.

                                      Ambient temperature
                                      The ambient temperature at the power plant site is important as with lower ambient
                                      temperature lower exhaust temperatures can be achieved and less energy is
                                      required to aid in the cooling of the working fluid in the binary power plant. The
                                      ambient temperatures are substantially higher in the Cooper Basin (in the day) than
                                      in the Otway Basin. Lower ambient temperature increases the thermal efficiency of
                                      the binary power plant.


Equities Research – Geothermal Energy in Australia                                                                        11
                                                                                                                                       15 June 2009

                                      Production Well Flow rates
                                      The higher the flow rate of the geothermal fluid from production wells drilled into the
                                      reservoir then the higher the power output.
                                      The flow rate depends on the permeability of the rock Permeability is a very
                                      important characteristic of geothermal reservoirs and can be of two types:
                                           (1) Primary permeability associated with natural porosity between sediment
                                               grains (e.g., oil and gas reservoirs typically occur as a result of porosity in
                                               sedimentary rocks)
                                           (2) Secondary permeability (developed after rocks have been deposited or
                                               formed) results from fractures, joints, faults and other openings developed
                                               in the reservoir rock that allow fluids to flow through rock.
                                      High permeability implies that fluids can flow easily through the rock.
                                      Linking temperature and flow rates to power output
                                      In the feature box on page 15 we show how the geothermal temperatures and flow
                                      rates can be used to derive the electricity output (MWe).

                                      Capital costs
                                      Drilling
                                      The cost of drilling depends on depth as shown in the chart below.

                                      EGS well cost predictions




                                      Source: The Future of Geothermal Energy, Impact of Enhanced Geothermal Systems on the US in the 21st Century,
                                      MIT

                                      Costs for initial deep (>4000m) production wells are likely to be around A$13-15M.
                                      Subsequent wells are likely to be at lower cost due to savings on rig mobilisation
                                      costs (as the number of wells being drilled increases) as well as “learning curve”
                                      impacts and economies of scale.
                                      Deeper wells, in addition to taking longer, require higher capability rigs, which incur
                                      higher day rate charges, compounding the drilling cost. In addition, pressure
                                      increases with depth, and hence deeper wells require higher capability casing, well
                                      head equipment and piping, leading to higher equipment costs. The negatives of
                                      drilling to depth include cost, time taken, increased risk of drilling failure and risks to
                                      equipment. Practically, the extra costs of drilling deeper wells trades off against the
                                      benefit of reaching higher temperatures that result in higher thermal conversion.


Equities Research – Geothermal Energy in Australia                                                                                                    12
                                                                                                             15 June 2009

                                      Plant
                                      Outside drilling, the relative costs of EGS and HSA are not significantly different
                                      from conventional geothermal projects using binary power stations. The power
                                      plant at the surface for both HSA and EGS is very similar. We understand the
                                      capital cost of binary power plants to be relatively standard at approximately
                                      US$2M/MW. Panax in the prefeasibility study used plant costs of A$3.5M/Gross
                                      MW at <20MW and A$2.75M/Gross MW >20MW. Substantial savings (30%) on the
                                      cost of plant are expected at scale (>50MW).

                                      Transmission
                                      The transmission connection involves two parts, the substation to convert output
                                      from the power station to a voltage appropriate for transmission (the voltage will
                                      depend on the distance of transmission required) and the overhead wire and towers
                                      from the power station to the closest electricity grid connection.
                                      We would expect a new substation/switching yard to cost A$10-25M but this is
                                      dependent on capacity. We expect a new overhead transmission line to cost
                                      ~A$400,000-A$500,000/ km for 132kV and more for 275kV. Transmission over
                                      100km could cost A$50M for the overhead line alone. Given the long transmission
                                      distances of up to 600 kilometres required with some of the most prospective EGS
                                      projects in SA and Queensland, it may prove necessary to use DC rather than a
                                      AC transmission systems to minimise the transmission power losses, at greater cost
                                      but with greater efficiency than AC.
                                      Planning and approval for new transmission lines are slow and can take years




Equities Research – Geothermal Energy in Australia                                                                      13
                                                                                                                  15 June 2009


                                      Operating costs
                                      Operating costs are field operating costs, plant operating costs and administration.
                                      Panax indicate operating costs in the range of A$12-23/MWh, which are considered
                                      to be conservative based on international comparison of geothermal operating
                                      costs.

                                      Sensitivity of long run marginal cost to construction cost and parasitic
                                      load
                                      Geothermal power is in an early stage of development in Australia and the cost of
                                      production can not be assessed with a high degree of accuracy, in our view.
                                      To provide some early stage guidance we show in the table below a range of
                                      estimates for the long run marginal cost of production from A$89/MWh to
                                      A$156/MWh based on a range of assumptions for construction costs and the
                                      parasitic load.
                                      Assumptions include:
                                      - 15.2% return on equity (6% risk free rate, 6% market risk premium, 1.5x equity
                                      beta)
                                      - 50% gearing
                                      - 8.0% real, post-tax WACC
                                      - total operating costs A$14/MWh
                                      - 25 year operating life
                                      - 2 year build time (after resource is proven)
                                      We show a range of construction costs between A$5.5M/MW and A$7M/MW.
                                      Company indications (most provided without detailed assumptions) include
                                      Petratherm A$5.7- 6.7M/MW, Panax A$7.25/MW - A$8.3M/MW, HotRock A$6-
                                      A$7M/MW, Greenearth Energy A$6-7M/MW and Geodynamics A$6M/MW. We
                                      would expect that the cost of construction for HSA and EGS once they can be more
                                      precisely defined will settle at differentiated levels.
                                      We show a range for parasitic load between 12-40%. 12% is the minimum parasitic
                                      load for a binary power plant. 33% is the indication for total parasitic load (plant and
                                      pumps) given by Panax in its pre-feasibility report. 40% is shown as it is possible
                                      that the parasitic load for EGS will be higher than that for HSA (due to the pressure
                                      at which water must be injected to create flow through a tight reservoir).

                                      Geothermal power long run marginal cost of production sensitivity
                                                                                           Parasitic Load
                                                              $/MWh             12%   20%             33%   40%
                                        Construction           5.5              89    97              113   125
                                        Cost                   6.0              96    105             123   135
                                        ($M/MW)                6.5              103   112             132   146
                                                               7.0              110   120             141   156

                                      Source: Wilson HTM Power Price Analyser

                                      This range of estimates (A$86/MWh to $156M/MWh) for the geothermal power cost
                                      of production is compared to our forecasts for the long run marginal cost of
                                      production from fossil fuel generators and wind power. The full set of assumptions
                                      behind the WHTM Power Price Analyser which is used for this analysis are
                                      available from the authors of this report.




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                                                                                                                                           15 June 2009


Long run marginal cost of power production
   180



   160



   140


                                               Potential range for geothermal
   120



   100



    80



    60



    40



    20



     -
                 Black Coal                    Brown Coal                       CCGT                      OCGT                         Wind

                    Fuel cost ($/MWh)     Variable O&M cost ($/MWh)     Cost of carbon ($/MWh)   Fixed O&M cost ($/MWh)   Capital cost ($/MWh)


Source: Wilson HTM Power Price Analyser


                                             Risks
                                             The risks to geothermal power in Australia are high and differ for HSA and EGS.

                                             Hot Sedimentary Aquifers
                                             The main risk to the economic development of HSA in Australia is sufficient
                                             permeability in the reservoir to achieve required flow rates.

                                             Enhanced Geothermal Systems
                                             The risks to the economic development of EGS in Australia include the following
                                             factors:
                                                  •     Deep drilling (to 5,000m+) poses significant challenges as deep wells
                                                        encounter hotter and denser rocks. Geodynamics’ Cooper Basin project
                                                        has lost two of four wells drilled.
                                                  •     Reservoir development risk to create sufficient flow and heat transfer
                                                        between the injection and production wells to support commercial
                                                        production is not proven. Controlling fractures at depths exceeding 5,000m
                                                        is a significant technological hurdle.
                                                  •     Fracturing of reservoir can create seismic events. An attempt to develop an
                                                        EGS in Basel, Switzerland in 2006/07 was bought to a halt as earthquakes
                                                        measuring 3 on the Richter scale were caused by injecting cold water to
                                                        fracture the reservoir.
                                                  •     High pressures may have to be maintained through the surface plant. This
                                                        requires R&D to adapt existing plant to these conditions.




Equities Research – Geothermal Energy in Australia                                                                                                   15
                                                                                                                                                    15 June 2009


BOX: How to calculate the power output based on temperature and flow rate
The output from a binary cycle geothermal power plant can not be calculated simply.
The first chart shows the enthalpy of water.
The second chart below shows the conversion efficiency for binary cycle power plants.

How to compute the MWe produced from geothermal heat
Assume an inlet temperature of 140ºC and an outlet temperature of 80ºC and a flow rate of 175kg/s.
The change in temperatures is 60ºC. Using the equation for the enthalpy of water in the first chart,
Energy extracted from geothermal water = Δ temperature * enthalpy of water (kJ/kg)
e.g. 4.2782 * 60ºC = 256.7kJ/kg
Energy output (MWt) = Energy extracted (kJ/kg) * flow rate (kg/s)
e.g. 256.7kJ/kg * 175 kg/s = 44,921kWt = 45MWt
At a thermal to gross electric conversion efficiency of ~9% (based on chart below for 140ºC inlet temperature)
Energy output (MWe) = Energy output (MWt) * thermal to gross electric conversion efficiency
e.g. = 45MWt * 9% = 4.05MWe
Using these calculations and assumptions and inlet temperature of 140ºC, outlet temperature of 80ºC and a flow rate
of 175kg/s would produce 4.05 MWe Gross. Parasitic losses would be deducted for MWe Net.

Enthalpy of Water from 50C to 200C                                                                       Conversion Efficiency for Binary Cycle Power Plants

                                          900
                                          800                   y = 4.2782x ‐ 7.6
  E n t h a lp y  o f W a t e r  (k J/ k g )




                                          700
                                          600
                                          500
                                          400
                                          300
                                          200
                                          100
                                               0
                                                   0   50          100          150       o 200   250
                                                            Geothermal  BrineTemperature ( C) 



Source: Source: IAPWS Industrial Formulation 1997 for the Thermodynamic                                 Source: M+W Zander, Germany, 2008

 Properties of Water and Steam




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                                                                                                                   15 June 2009



                                      Market for geothermal power production
                                      The extension of the Australian Governments’ renewable energy target described
                                      below is creating a market for geothermal (and other renewable energy) in
                                      Australia. In this section we describe the process for extension of the renewable
                                      energy target to 20% of Australian electricity supply from renewable energy sources
                                      by 2020. The renewable energy target imposes a liability on energy retailers to
                                      source a set percentage of the power they sell from renewable sources. The
                                      liability party surrenders renewable energy certificates to discharge their liability.
                                      Bundled power prices (the wholesale price and subsidy for renewable power) have
                                      historically been ~A$80/MWh. Recently, new contracts for wind power have been
                                      signed at A$100/MWh. Market participants are now expected prices to move to the
                                      range of A$120-A$130/MWh. The increase in pricing is due to expectations that the
                                      wholesale power price will rise over time and a proposed increase in the subsidy
                                      price. The renewable energy certificate price currently has a price ceiling of
                                      A$57/MWh and it has been proposed that this price ceiling increase to A$93/MWh
                                      (discussed in this section). In balanced supply and demand the renewable energy
                                      certificate (REC) price would remain close to the ceiling price. However, banking of
                                      RECs is permitted which makes the REC price extremely difficult to forecast.
                                      Banking means that REC prices in any one year may be well below the theoretical
                                      ceiling.
                                      As discussed in the previous section MMA, in its report commissioned by the
                                      Australian Geothermal Energy Association, provides a range for the levelised
                                      generation cost of geothermal as A$90-A$145/MWh at demonstration stage and
                                      A$80-A$120/MWh at commercial stage.        Renewable energy prices above
                                      A$100/MWh have the potential to support geothermal power at its commercial
                                      stage.
                                      Cost overruns against forecasts and development setbacks should be expected at
                                      this stage. Alternatively, knowledge gains, technological advances and good results
                                      could bring in projects below the current expected range of production costs.

                                      The legislation
                                      In December 2008 the Australian Government released the exposure draft bill to
                                      expand its Mandatory Renewable Energy Target (MRET) scheme of 9,500 GWh in
                                      2010 to a national Renewable Energy Target (RET) scheme with a target of 45,000
                                      GWh in 2020.
                                      On 30 April 2009, Council of Australian Governments' (COAG) agreed the design of
                                      the expanded national Renewable Energy Target (RET) scheme.
                                      The Renewable Energy (Electricity) Amendment Bill (2008) and Renewable Energy
                                      (Electricity) Regulations (2008) are scheduled to be put to Parliament in mid-2009
                                      with a start date for the amended scheme on 1 January 2010. The first obligation to
                                      surrender Renewable Energy Certificates will occur in early 2011.
                                      This scheme will deliver the Government’s commitment that the equivalent of 20%
                                      (approximately 60,000 GWh) of Australia’s electricity supply will be delivered from
                                      renewable sources by 2020.
                                      The key elements of the expansion as set out in the draft legislation are:
                                          •    Ramp-up of annual targets from 2010 rising to 45,000 GWh in 2020. The
                                               annual targets would ramp up gradually between 2009 and 2014 and at a
                                               faster rate between 2016 and 2020. The target is maintained at 45,000
                                               GWh from 2020 to 2030 at which point the RET will conclude. The existing
                                               and proposed renewable energy targets are shown in the following chart.




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                                      Renewable Energy Target existing and proposed expansion

                                               50000



                                               40000



                                               30000
                                                                                            Betw een the the "new REC"



                                         GWh
                                                                                            and "existing REC" lines
                                               20000                                        w orth $25-$40B to the
                                                                                            renew able energy sector


                                               10000



                                                  0
                                                 20 1
                                                   02

                                                 20 3
                                                   04

                                                 20 5
                                                   06

                                                 20 7
                                                   08

                                                 20 9
                                                   10

                                                 20 1
                                                   12

                                                 20 3
                                                   14

                                                 20 5
                                                   16

                                                 20 7
                                                 20 8
                                                   19

                                                 20 0
                                                   21

                                                 20 2
                                                   23

                                                 20 4
                                                   25

                                                 20 6
                                                 20 7
                                                 20 8
                                                   29
                                                   30
                                                   0

                                                   0

                                                   0

                                                   0

                                                   0

                                                   1

                                                   1

                                                   1

                                                   1
                                                   1

                                                   2

                                                   2

                                                   2

                                                   2
                                                   2
                                                   2
                                                 20

                                                 20

                                                 20

                                                 20

                                                 20

                                                 20

                                                 20

                                                 20

                                                 20



                                                 20

                                                 20

                                                 20

                                                 20




                                                 20
                                                                              New RECs     Existing RECs


                                      Source: Wilson HTM

                                           •     The design maintains the same treatment for banking RECs as under the
                                                 existing scheme. RECs created or purchased by liable parties to meet
                                                 annual targets can be ‘banked’ by the owners for sale or surrender in later
                                                 years of the scheme. Banking is permitted for the life of the scheme without
                                                 restriction.
                                           •     The fixed (un-indexed) shortfall change or penalty for non-compliance will
                                                 be set at A$65/MWh, maintained in nominal terms over the life of the
                                                 scheme. This grosses up to A$93/MWh once the non-tax deductible
                                                 treatment is taken into account. The current shortfall penalty is A$40
                                                 (grossed up to A$57 before tax).
                                           •     Assistance to electricity-intensive, trade-exposed industries mirrors that
                                                 proposed under the Carbon Pollution Reduction Scheme.

                                      Scale of the build-out to meet the legislation’s targets
                                      To give an idea of the scale of the build out required to meet the 45,000 GWh
                                      target, between now and 2020 more than half of all new electricity generation
                                      capacity built in Australia will need to be renewable power, excluding retirement of
                                      existing stock.
                                      We expect that wind power, the most mature renewable energy technology, will
                                      take a large portion of the RECs. However, wind power provides intermittent supply
                                      and as such has a natural limit in the electricity system.
                                      AGL Energy (which has a strong interest in wind power) believe that as wind power
                                      approaches it natural limit there will be a role for other new build (geothermal, solar
                                      and wave) to supply RECs from 2016. It is a race to market for the emerging
                                      renewable energy options - geothermal, wave and solar thermal. The technology
                                      which can break through and demonstrate commerciality is likely to take the bulk of
                                      the remaining RECs, at the expense of slower to market options. Once the RECs
                                      are fully allocated, those slower to market technologies are likely to stall.




Equities Research – Geothermal Energy in Australia                                                                                 18
                                                                                                            15 June 2009


                                      Renewable energy production required for MRET




                                      Source: AGL Energy, May 2009

                                      The Government’s recent funding of solar thermal is a threat to geothermal. The
                                      Clean Energy Initiative in the 2009/10 Federal Budget committed A$1.6B (A$1.4B in
                                      new funding) to the Solar Flagships Program to support construction and
                                      demonstration of large scale solar power stations in Australia. This compares to
                                      A$300M available through the Renewable Energy Demonstration Program (REDP)
                                      for geothermal, wave and biomass (applications for grants under the REDP have
                                      closed and expected to be awarded in August 2009).

                                      Size of the subsidy created by legislation
                                      The draft bill for the expanded RET directs an estimated A$25-A$40B through new
                                      RECs during 2010-2030 to the renewable energy sector.

                                      As shown in the chart below we expect the market will start small at an estimated
                                      A$100-A$200M in 2010 and grow to around A$1.8-A$2.9B at its peak from 2020-
                                      2030. We show a range based on the A$40/MWh current penalty price and the
                                      COAG approved A$65/MWh new penalty price. While the A$65/MWh price is most
                                      likely (and is approved by COAG) it will not be confirmed until it is passed in
                                      legislation.




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                                                                                                                             15 June 2009


                                      Potential value of the new RECs per annum

                                               3000



                                               2500



                                               2000



                                         ~$M   1500



                                               1000



                                                500



                                                 0
                                                  10

                                                  11
                                                  12
                                                  13

                                                  14
                                                  15
                                                  16

                                                  17
                                                  18
                                                  19

                                                  20
                                                  21
                                                  22

                                                  23
                                                  24
                                                  25
                                                  26

                                                  27
                                                  28
                                                  29

                                                  30
                                                20
                                                20
                                                20

                                                20
                                                20
                                                20
                                                20

                                                20
                                                20
                                                20

                                                20
                                                20
                                                20

                                                20
                                                20
                                                20

                                                20
                                                20
                                                20

                                                20
                                                20
                                                       Estimated value of new RECs (@$65/MWh)   Estimated value of new RECs (@$40/MWh)

                                      Source: Wilson HTM


                                      Grants available to geothermal development in Australia

                                      Federal Geothermal Drilling Program
                                      In August 2008 the Federal Government launched the A$50 million Geothermal
                                      Drilling Program (GDP) which supports "proof-of-concept" projects for the
                                      geothermal industry. The GDP is a competitive merit-based grants program
                                      provided as dollar for dollar matched funding and is capped at A$7 million per proof-
                                      of-concept project.
                                      In April 2009, it was announced that Petratherm and Panax were the successful
                                      applicants for funding under the first round of the GDP. Both were awarded A$7M.
                                      Applications for round 2 of the GDP close on 4 August 2009. Successful applicants
                                      are expected to be informed in October/November 2009.

                                      Renewable Energy Demonstration Program
                                      Applications closed on 15 April 2009 for the A$435M (since reduced to A$300M
                                      excluding solar) Federal Government Renewable Energy Demonstration Program
                                      (REDP).
                                      The size of the grants to successful projects is expected to be in the range of
                                      A$50M to A$100M and provide up to one third of the eligible expenditure on the
                                      projects. The private sector is to provide A$2 for A$1 of government funding.
                                      Funding is available for 2008/09 and 2009/10, although longer term projects can
                                      also apply.
                                      Geodynamics, Petratherm and Greenearth are the listed geothermal companies
                                      that have applications under consideration for grants, which are expected to be
                                      announced in August/September 2009.




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                                                                                                                15 June 2009



                                      Status of geothermal power in Australia
                                      The only geothermal power produced in Australia is from the Birdsville Geothermal
                                      Power Station which uses 98ºC water from the Great Artesian Basin from a depth of
                                      1,230m (ie a HAS system). Apart from this project geothermal power is not
                                      produced in Australia because:
                                           •    there are no active volcanic regions which provide the highest quality
                                                geothermal resources;
                                           •    advances in drilling and downhole technology have only recently permitted
                                                drilling to the depths required to achieve sufficient heat,
                                           •    some of the best geothermal resources are in the interior of the continent
                                                away from the electric grid,
                                           •    geothermal is more expensive that fossil fuel power without a renewable
                                                energy certificate / carbon trading scheme,
                                           •    the strong government policy support for renewable energy has only
                                                emerged relatively recently in conjunction with a growing awareness of CO2
                                                emission issues and climate change.
                                      As shown in the chart below, Australia is one of a group of countries, including
                                      India, Hungary, Germany and China that have a limited conventional resource
                                      potential, but are exploring low-temperature and EGS opportunities.

                                      Global geothermal country rankings by installed capacity and project pipeline




                                      Source: Emerging Energy Research


                                      Parallels to coal seam methane
                                      We believe that the future development of the geothermal industry in Australia
                                      shares some similarities with the development of the coal seam gas (CSG) industry.
                                      Both industries involve the identification of a potentially large energy resource,
                                      satisfactory resolution of technical risks to cost effectively extracting the resource
                                      and the development of new markets to commercialize the resource in a reasonable
                                      time frame such that investors attach economic value to this potential. The
                                      development of the CSG industry took a number of years to optimize and customize
                                      drilling, well completion and production methods to the individual CSG fields. One
                                      should expect that the Australian geothermal industry will also take time to optimize
                                      development of HSA and EGS resources.



Equities Research – Geothermal Energy in Australia                                                                         21
                                                                                                                15 June 2009

                                      Until early 2008 CSG companies were primarily valued on a risk adjusted DCF
                                      valuation of certified 2P reserves supplying identified gas sales contracts. However,
                                      valuations moved to recognize the underlying resource potential in addition to
                                      current reserves and gas contracts as the ability of Australian CSG companies to
                                      explore and appraise CSG projects at low cost was demonstrated, understanding
                                      increased of the resource potential and ultimate gas recovery of CSG projects, and
                                      expectation of the future gas price increases firmed. CSG companies are now
                                      being valued on risk adjusted DCF analysis taking into account future production
                                      assumptions, underpinned by 3P reserves and contingent resources and increasing
                                      gas prices. As a result, investors in CSG companies are paying greater attention to
                                      the quality and potential of a company’s acreage and assets in addition to certified
                                      reserves and are willing to pay for this value earlier than had previously been the
                                      case.
                                      Path to development
                                      Near term
                                      A new rig has arrived in Australia to begin a programme of geothermal drillings.
                                      Weatherford Drilling will operate a new 2,000 HP LTI “Lightening” Rig, WDI Rig #
                                      828 with the capacity to drill to 6,000m. This will be used to drill:
                                          •    Paralana 2 deep injection well - spudding June 2009: (Petratherm, Beach
                                               Petrolum and TRUEnergy)
                                          •    Salamander 1 deep production well – September 2009 (Panax)
                                      The results from this drilling will provide important new information on both EGS and
                                      HSA.
                                      Other near term events for the geothermal power developers are the award of
                                      further geothermal drilling grants (announced Oct/Nov 09), the award of REDP
                                      Grants (announced Aug/Sept 09) and progress by Geodynamics.

                                      Medium term
                                      The stages of developments for geothermal is defined by McLennan Magasanik
                                      Associates as:
                                      1. Securing and evaluating a tenement;
                                      2. Proof of concept which shows that a heat source is available and that a
                                      production flow to surface of fluid carrying geothermal heat can be established. It is
                                      not necessary to generate electricity for proof of concept;
                                      3. Pilot (<10MW) and /or demonstration (up to 50MW) stage;
                                      4. Commercial development (>50MW).
                                      All the geothermal developers are in at Stage 1, with the exception of Geodynamics
                                      who has achieved proof of concept but not yet generation. The more advanced of
                                      the developers are Geodynamics, Petratherm and Panax. Their targets are grid
                                      connected power by 2011- 2012.
                                      The planned development paths for the geothermal companies are outlined below.
                                      Given the early stage of development these planned milestones are highly likely to
                                      change over time.




Equities Research – Geothermal Energy in Australia                                                                         22
                                                                                                                                                                 15 June 2009




Geothermal Companies Planned Development Paths
 Company       Code Project                 2009                    2010                      2011                    2012           2013     2014       2015    2016    2017



 Geodynamics   GDY Cooper Basin    1 MW Power Plant                                   50 MW Power Plant      Commercial operation 9*50MW Power Plants

 Panex             Penola - Otway Deep production well                  Develop Demonstration Plant          Develop Phase 1 at   Develop Phase 2 at
 Geothermal    PAX Basin          (4000m)                               6.7MW                                20.1MW               67MW
                                   Paralana 2 well                    power late
                   Paralana,       (4000m), logging,                  2010
                   Flinders        fracturing and          Panalana 3 7.5MW30 Demonstration Plant
 Petratherm    PTR Ranges          stimulation             drilling   MW         30MW

 Geothermal        Frome, Broken                           Fracturing, circulation,
 Resources     GHT Hill          2 deep wells.             production test

                    Torrens,
 Torrens Energy TEY Olympic Dam    Heat mapping on grid    Resource and Feasibility Assessment
                   Otway and
 Greenearth        Gippsland       Resource estimation     2 deep                     Demonstration Plant
 Energy        GER Basins          (Dec 08)                wells                      5MW                    Commercialisation modular 5MW units
                                                           Drilling, fracturing and
 Green Rock                                                water circulation
 Energy        GRK Olympic Dam     Design Program          testing                                           3-5MW Power Plant              25MW        50MW    100MW   400W

                                   Finalise 3D resource model and first deep
 KUth Energy   KEN Tasmania        drilling target

                                                           2 testing wells to         Resource and
 Hot Rock      HRL Otway Basin                             3,500m                     Feasibility Assessment Plant Construction
               Proof of Concept
               Commercial Demonstration
               Commercial

Source: Wilson HTM


                                                 International EGS development
                                                 The first and only commercial EGS development is a 2.5MW facility in Landau,
                                                 Germany, inaugurated in October 2007. Two projects - Soultz in France and
                                                 Geysers EGS in California, US – show promise for greenfield EGS and mature field
                                                 enhancement using fracturing, respectively.

                                                 International HSA development
                                                 The majority of the 10,000MWe of geothermal power capacity currently installed is
                                                 volcanic related with a small portion of this total is derived from geothermal reserves
                                                 in hot sedimentary aquifers, akin to those being developed in Australia.
                                                 The Australian developers of hot sedimentary aquifers are following an approach
                                                 that has yet to be proven to be commercial. The key difference is that the
                                                 Australian targets are substantially deeper (2,500-4,000m) than those that have
                                                 been developed commercially in the USA (1,000-2,000m) but somewhat shallower
                                                 than those in the Molasse sedimentary basin in Germany.
                                                 Global examples of commercial HAS projects include:
                                                       •     In Nevada around 300MW is produced from HSA at depths of ~1,000m
                                                       •     In California two fields Heber and East Mesa have been producing 160MW
                                                             from sandstone reservoirs since the mid-1980s. The depth of the reservoir
                                                             is at 1,000-2,000m.
                                                       •     Raser Technologies operates an HSA plant in the United States.
                                                       •     In Germany, in the Molasse Basin to the south of Munich geothermal wells
                                                             with depths to 4300m have been developed over the past decade for district
                                                             heating systems and a 3.6MWe Kalina cycle geothermal power plant has
                                                             been recently commissioned. Additionally there are a further three projects
                                                             that are now being actively developed for small scale geothermal power
                                                             plant, up to about 5 MWe in size, utilising geothermal water at up to 150oC.
                                                             One of these projects expects to drill to depths of up 4900 to 5300 metres
                                                             to access 150C water.


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                                             Licensing of geothermal tenements
                                             The licensing of geothermal tenements is State-based with the 2008 position
                                             summarised in the map below. This map does not include new permits granted in
                                             Victoria, WA and additional land released in WA and QLD.
                                             On the following page we provide a State by State summary of the history of
                                             geothermal licensing, government legislation and the licensing body and royalties.

Areas covered by geothermal exploration licenses in Australia




Source: Department of Primary Industry and Resources South Australia, 2008




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Geothermal licences
  Category                                      History                                Governing Legislation / Regulatory Body                                         Funding / royalties

NSW                                                                                   Geothermal exploration and development is governed by         Royalty: 4% ex-mine value (less allowable deductions)
                                                                                      the Mining Act, 1992. The Mining (General) Amendment
                                                                                      (Geothermal Substances) Regulation 1998 included all
                                                                                      substances occurring naturally or artificially underground
                                                                                      that are heated by the natural processes of the earth to a
                                                                                      temperature in excess of 100 deg C.
                                                                                      Department of Primary Industries

Victoria             2005: Geothermal Resources Act passed.                           Geothermal Energy Resources Act 2005: provides the            Royalty is to be paid at the rate, and in accordance with the
                                                                                      framework for large-scale commercial exploration and          conditions, specified in the licence.
                     2006: Public tender process for 31 permits covering the entire   extraction of geothermal energy at depths greater than
                     state. Five companies accepted offers over 12 permits            1,000 m and at temperatures greater than 70°C. Small-
                                        2
                     covering 73,000 km ; A$64 million in expenditure.                scale geothermal projects, such as ground heat pumps
                     2008: Public tender process. Three companies accepted            used for aquaculture and resorts, are excluded.
                                                              2
                     offers over 11 permits covering 90,000 km ; A$300 million        Department of Primary Industries
                     over the five year term of the permits.

Queensland           2004/2005: Geothermal legislation passed                         First State to have specific legislation. The Geothermal      The Queensland Government has committed A$15 million
                                                                                      Exploration Act 2004 and the Geothermal Exploration           over the next five years to establish the Queensland
                     2005: Hot Rock Limited (3 areas), Geodynamics (2 areas).         Regulation Act 2005 regulate exploration.           Further   Geothermal Energy Centre of Excellence, with a focus on
                     2006: KUTh Exploration, Clean Energy Australasia and             legislation due re production of geothermal energy.           scientific and engineering expertise in geothermal power
                     Granite Power preferred tenderers for nine areas.                                                                              generation. The University of Queensland has committed a
                                                                                      Department of Mines and Energy                                further A$3.3 million.
                     2007: Call for tenders: 13 areas.
                                                                                                                                                    Royalty: align with the level of royalty for domestic coal
                                                           2
                     Feb 2009: call for tenders 5000 km .                                                                                           production used in electricity generation.

South                First State to develop legislation for geothermal exp.           Governed by the Petroleum Act, 2000. A Green Paper on         Acreage becomes available for application by new area
                                                                                      Proposed Amendments to the Petroleum Act; proposed            releases, relinquished area on renewal, surrender or
Australia            2001: granted first Australian GEL.                                                                   2
                                                                                      maximum licence areas of 10,000 km for a GEL and              cancellation. Relinquishment is 50% of the original area for
                                                                                             2
                     2009: >100 exploration licences covering 96,000 km ;
                                                                                 2    1000 km for a Geothermal Retention Licence (GRL) or a         highly prospective regions, and 33% for less prospective
                                                         2
                     applications for a further 29,000 km . 15 retention licences     Geothermal Production Licence (GPL).                          basins; occurs upon renewal at 5 year term.
                     and applications for a further 5.                                Dept of Primary Industries and Resources                      Royalty: 2.5% of the value of the sale at the well head
                                                                2
Tasmania             7 exploration rights covering 31,000 km as of June 2008:         The Mineral Resources Development Act, 1995.                  Royalty: 2.5% of the value of the sale at the well head
                                                                         2
                     Kuth Energy Limited; Geopower Pty Ltd (4892 km ) and
                     Geothermal Energy Tasmania Pty Ltd (three licenses covering      The category of special exploration licence (SEL) is
                             2
                     8495 km ).                                                       designed to encourage broad regional-scale exploration
                                                                                      programs over poorly explored areas; tenure to 10 years.
                                                                                      Dept of Infrastructure, Energy and Resources

Northern             2006: public discussion paper re proposed Geothermal             Geothermal Energy Act 2009.                                   Royalty: set by the minister
                     Energy Bill
Territory                                                                             Department of Primary Industry, Fisheries and Mines.

Western              Jan 2008: Petroleum and Geothermal Resources Act                 Petroleum and Geothermal Resources Act (1967) (Pet Act        Royalty: 2.5% of the value of the sale at the well head
                                                                                      1967 amended Jan 2008).
Australia            Jan 2008: first acreage release, Perth Basin.
                                                                                      Dept of Mines and Petroleum
Source: Wilson HTM


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                                      Geothermal reserves and resources
                                      The “Geothermal Reporting Code” was published in 2008 as the required minimum
                                      standard for the public reporting of the assessment and quantification of geothermal
                                      reserves and resources. The Geothermal Code is based closely on the Joint Ore
                                      Reserves Committee (JORC) Code for mineral resources and ore reserves. The
                                      key features of the Geothermal Code are described below and compared with the
                                      JORC Code and Petroleum Resources Management System.

                                      Geothermal Code
                                      The Geothermal Code covers all forms of geothermal energy (e.g. conventional
                                      volcanic based energy, hydrothermal aquifers and hot rocks); all uses of geothermal
                                      energy (including geothermal thermal energy for electricity generation, direct use in
                                      industrial processes or space heating, or as supplemental energy); and the
                                      minimum and mandatory requirements for public reports.
                                      The Australian Geothermal Energy Association requires its members to comply with
                                      the Geothermal Code from its release in August 2008. The Code is not yet
                                      endorsed by the ASX or any regulator in the Australian financial markets and the
                                      use of the Code by a company or entity does not imply acceptance by regulators of
                                      the content of a report written under the Code.
                                      The JORC Code and the Geothermal Code conform to the International Reporting
                                      Template (CRIRSCO, 2006) that covers the public reporting of exploration results,
                                      resources and reserves for the global mining industry.

                                      Mineral resources and ore reserves (JORC Code)
                                      The “Australasian Code for Reporting of Exploration Results, Mineral Resources
                                      and Ore Reserves”, otherwise known as the JORC Code, sets out minimum
                                      standards for public reporting in Australasia of Exploration Results, Mineral
                                      Resources and Ore Reserves for all solid minerals, including diamonds, other
                                      gemstones, industrial minerals and coal.
                                      The JORC Code is binding on members of the Australian Institute of Mining and
                                      Metallurgy and the Australian Institute of Geoscientists, and is endorsed by the
                                      Minerals Council of Australia and Securities Institute of Australia (now FINSIA).

                                      Petroleum reserves and resources
                                      The most common petroleum reserves and resources definition system is the
                                      SPE/WPC/AAPG/SPEE Petroleum Resources Management System (SPE-PRMS),
                                      which was updated in March 2007. The relative degree of uncertainty is conveyed
                                      by categories based on uncertainty of recoverability.
                                               Proved                          1P      P90
                                               Proved + probable               2P      P50
                                               Proved + probable + possible    3P      P10
                                      The system uses forecast economic conditions defined by evaluators, rather than
                                      current constant conditions in determining commerciality. Probabilities are denoted
                                      based on the probability level being exceeded; hence P90 denotes a 90 % chance
                                      of the recovered quantity being greater than the amount specified.




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Geothermal reserve and resource summary




Source: The Australian Geothermal Reporting Code, 2008 Edition




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Company Summaries




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                                      Geodynamics Limited (GDY)

                                      Overview
                                      The Cooper Basin project is the most advanced EGS geothermal project that has
                                      been developed in Australia and is jointly owned by GDY (70%) and Origin Energy
                                      (30%). GDY recently completed stage one of its three stage business strategy by
                                      achieving “proof of concept” in March 2009 which involved resource definition,
                                      drilling of wells, hydraulic stimulation and well productivity.
                                      A 1MW pilot power plant is built but has not been commissioned due to a Habanero
                                      3 well incident that has delayed Geodynamics plans by 6-9 months.
                                      The second stage is the development of a commercial demonstration EGS
                                      geothermal power plant which involves field and plant design, drilling of nine wells,
                                      construction and completion of transmission infrastructure. Co-location of a large
                                      data centre is also being investigated. The commercial demonstration plant is
                                      expected to produce 50MW with a final investment decision to be made by
                                      December 2010 (delayed from June 2010).
                                      The third stage involves the replication of the 50MW demonstration plant nine times
                                      over to create a commercial scale power plant capable of producing 500 MW.
                                      GDY also has EGS geothermal tenements in New South Wales (Muswellbrook,
                                      Bulga), Queensland (Tennaperra, Nappa Merrie) and South Australia.
                                      GDY has a 3% shareholding in the unlisted Icelandic based public company Geysir
                                      Green Energy ehf (GGE). The investment arose from GDY agreeing to swap its
                                      former 25% shareholding in Exorka International Limited (Exorka) for a 3%
                                      shareholding in its larger, parent company Geysir GGE in June 2008. Exorka is a
                                      geothermal energy company based in Europe that holds a global sub-license for
                                      the Kalina power cycle technology (efficient technology in converting heat sources
                                      into electricity). This investment offers an opportunity to accelerate the market
                                      penetration of the Kalina technology and access to the European clean energy
                                      market. GGE is an unlisted Icelandic public geothermal energy company which
                                      invests in the development and construction of geothermal plants.
                                      GDY estimates its tenements contain an identified thermal resource of
                                      approximately 400,000 PJ, with an inferred resource position of 230,000 PJ.
                                      As at 11 June 2009, GDY had an undiluted Market Capitalisation of A$296m.

                                      Board and Management
                                      Board: Martin Albrecht AC (Non-Exec Chairman), Gerry Grove-White (MD), Pieter
                                      Britz (Non-Exec Dir), Dr Prame Chopra (Non-Exec Dir), Dr Jack Hamilton (Non-
                                      Exec Dir), Andrew Stock (Non-Exec Dir), Pieter Britz (Non-Exec Dir), Keith Spence
                                      (Non-Exec Dir), Robert Davies (Non-Exec Dir) and Banmali Agrawala (Non-Exec
                                      Dir).
                                      Management: David Anthony (Subsurface Manager), Paul Fredriks (Company
                                      Secretary and COO) Melanie Manton (IT Manager), Rod Smith (Project Manager),
                                      Peter Schmidt (Power Engineering Manager), Alistair Webb (Commercial Manager)
                                      and Doone Wyborn (Chief Scientist).

                                      Ownership
                                       Tata Power Company 10.1%, Origin Energy 6.9%, Robert Healy 5.3%, Sunsuper
                                      4.3% and The Sentient Group 4.3%.

                                      Key Assets
                                      Cooper Basin EGS geothermal project (70%), Hunter Valley (100%), Queensland
                                      (100%) and South Australia (100%).



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                                                     Cooper Basin EGS Geothermal Project
                                                     GDY holds four permits over the Cooper Basin with a
                                                     70% interest in each (Origin Energy owning the
                                                     remaining 30%) covering 1,962 km2 comprising GRL’s
                                                     3-7 (Innamincka), GRL’s 8-12 (Bulyeroo), GEL 99
                                                     (Moomba) and GEL 211 (Moontana).
                                                     These are the most developed of Geodynamics
                                                     projects.




Source: Geodynamics

                                                     Hunter Valley
                                                     GDY holds two tenements in New South Wales,
                                                     Muswellbrook (EL5560) and Bulga (EL5886). The
                                                     exploration licences were renewed for a further three
                                                     year period to 2011.
                                                     Planning is currently underway for an immediate 2km
                                                     well to be drilled on the Bulga tenement in late 2009.
                                                     The purpose of the well is to help GDY gain a greater
                                                     understanding of the temperature gradients underlying
                                                     the Sydney Basin coal measures.




Source: Geodynamics

                                                     Queensland geothermal exploration blocks
                                                     GDY has a 100% interest in two tenements in
                                                     Queensland, Tennaperra (EPG5) and Nappa Merrie
                                                     (EPG6).
                                                     Following the resolution of legal interpretation issues,
                                                     GDY has informed the Queensland Government of its
                                                     intention to take up its geothermal exploration licenses.
                                                     GDY expects to take up the A$150,000 Smart Mining
                                                     Collaborative Drilling grant in order to begin heat flow
                                                     well drilling as soon as possible.




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                                      Panax Geothermal Ltd (PAX)

                                      Overview
                                       PAX has interests in both conventional geothermal resources (volcanic related)
                                      and EGS’s such as hot fractured rock geothermal systems. PAX’s key asset is the
                                      advanced Penola geothermal project located at the Limestone Coast region in
                                      South Australia. The project is estimated to have generating potential of
                                      approximately 1,500MWe which is enough power for more than one million homes.
                                      PAX also has geothermal assets in the Cooper Basin of Australia, India, Slovakia,
                                      Kyrgyz Republic & Tajikistan.
                                      As at 11 June 2009, PAX had an undiluted Market Capitalisation of A$32m.

                                      Board and Management
                                       Dr Bertus de Graaf (Managing Dir), Mr Kerry Parker (Exec Dirc, CFO & Company
                                      Secretary), Mr Greg Martyr (Non-Exec Dir), Mr Stephen Evans (Non-Exec Dir), Mr
                                      Ian Reid (Non-Exec Dir), Mr Ron Palmer (COO) & MRs Donna Gallaher (Group
                                      Finance Manager).

                                      Ownership
                                       WCP Resources Limited (16.5%), Terra Firma (15.0%), Znowy Nominees (15.0%)
                                      & Executives (7.5%).

                                      Key Assets
                                      Penola Project (100%), India - Puga Project (49%), India - Krishna-Godavari Project
                                      (32%), Kyrgyzstan (61%) & Slovakia (75%).




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                                                     Limestone Coast Geothermal Project (incorporating the
                                                     Penola Project)
                                                     The Limestone Coal Geothermal project comprises 8
                                                     GEL’s in South Australia targeting conventional
                                                     geothermal energy. The project’s tenements cover an
                                                     area of 3,000km2 within close proximity to established
                                                     infrastructure including the national & state power grid.
                                                     The Penola project in GEL 223 has a Measured
                                                     Geothermal Resource totalling 11,000 PJ with an Inferred
                                                     Geothermal Resource exceeding 300,000 PJ based on
                                                     the extensive database of conventional gas wells and 2D
                                                     and 3D seismic.
                                                     PAX has won a A$7 million Australian Government grant
                                                     for drilling of the project.
                                                     PAX also has a Memorandum of Understanding with
                                                     Adelaide Energy regarding co-operation and sharing of
                                                     facilities in the Penola region.
                                                     PAX is currently preparing for spudding the Salamander-1
Source: Panax                                        well in September 2009.
                                                     Given the conventional nature of the project and its close
                                                     proximity to existing infrastructure, PAX believes it could
                                                     develop a grid-connected commercial demonstration
                                                     power plant (67 MW gross) by the end of 2011. A recently
                                                     endorsed independent Pre-Feasibility Study revealed the
                                                     Penola project could produce power at A$63 MWh.
                                                     After receiving encouraging results from the Pre-
                                                     Feasibility Study and the significant resource identified,
                                                     PAX is currently investigating a number of potential joint
                                                     venture partners for the project.

                                                     Puga Project, India (49% option)
                                                     Puga is an advanced, ready to drill test project located in
                                                     the Himalayan Geothermal Province, 140 km east of the
                                                     tourist town of Leh. Existing data has confirmed the
                                                     occurrence of extremely high geothermal gradients and
                                                     the presence of a shallow geo-pressured geothermal
                                                     reservoir. Puga is a joint venture between PAX and
                                                     Geosyndicate Power Private Ltd. Geosyndicate Power
                                                     Private Ltd (GPP) is India’s pioneer geothermal
                                                     development company.
                                                     A Magneto-Telluric survey has delineated a shallow and a
                                                     deeper geothermal reservoir. The latter has an estimated
                                                     minimum temperature of approximately 250ºC at a depth
                                                     of 2,500m and has the potential to generate well in excess
                                                     of 100 MWe.




Source: Panax




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                                      Cooper Basin (100%)
                                      PAX’s Cooper Basin interests comprise three tenements (GEL220, 221 & 281) two
                                      of which border Geodynamics tenements in South Australia. PAX acquired its
                                      interest in these tenements and the Penola Project following its acquisition of Osiris
                                      Energy (Melbourne based geothermal exploration company) in September 2008.

                                      Krishna- Godavari Project, India (32% option)
                                      Krishna- Godavari Project is a joint venture between PAX and GPP. GPP has the
                                      exclusive exploration rights for geothermal resources to drill shallow and deep
                                      geothermal wells in the State of Andhra Pradesh. The shallow wells record indicates
                                      that it has high heat flow rate of 100- 180 MW/m2 and geothermal gradients ranging
                                      from 60- 80°C/km.
                                      PAX can earn 32% of the project by spending A$6 million as part of a joint venture,
                                      with PAX being the operator.

                                      Kyrgyzstan, Kyrgyz Republic (61% option)
                                      The project comprises four geothermal exploration licenses covering more than
                                      4,500km2 in the Kyrgyz Republic, Central Asia. Indicated geothermal gradients are
                                      in excess of 100°C/km, suggesting a potential for very large scale base load power
                                      generation potential.
                                      PAX recently received notification from the World Bank’s GeoFund requesting
                                      formal project proposals to be submitted for grants and geological risk insurance for
                                      exploration in Kyrgyz Republic and Tajikistan.

                                      Slovakia
                                      PAX is currently focussed on a detailed review of a large data base of historical oil
                                      and gas information that is available to PAX’s joint venture partner, Geopark. This
                                      information has been made available to PAX as part of its Memorandum of
                                      Understanding with Geopark. The review is aimed at identifying areas suitable for
                                      geothermal exploration and development. The EEC has mandated €150/MWh
                                      selling price for 30 years for geothermal power production.




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                                      Petratherm Ltd (PTR)

                                      Overview
                                      PTR was listed on the ASX in 2004 and aims to develop a portfolio of quality
                                      geothermal energy projects using both conventional and EGS’s for power and heat.
                                      These include three potential hot rock projects in South Australia/Victoria, a
                                      hydrothermal and volcanic geothermal project in Spain; and exclusive exploration
                                      agreements in China.
                                      As at 11 June 2009, PTR had an undiluted Market Capitalisation of A$20m.

                                      Board and Management
                                      Derek Carter (Chairman), Richard Hillis (Non-Exec Dir), Richard Bonython (Non-
                                      Exec Dir), Simon O’Loughlin (Non-Exec Dir), Terry Kallis (Managing Dir), Peter Reid
                                      (Exploration Mgr), John King (Paralana Project Mgr), Jonathon Teubner (Business
                                      Development Mgr) & Betina Bendall (Chief Geologist).

                                      Ownership
                                      Minotaur Resources Investments Pty Ltd (25.7%) & National Nominees Limited
                                      (6.9%).

                                      Key Assets
                                      Australia – Paralana (34%), East Gippsland, Renmark, Spain, Canary Islands,
                                      Mainland Spain, Congost
                                      China




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                                                     Paralana Project
                                                     Paralana is PTR’s most advanced project and is located 130km
                                                     east of Leigh Creek in South Australia’s northern Flinders Ranges.
                                                     The project targets delivery of commercial geothermal energy
                                                     supply by 2011 to the Beverley Uranium mine (situated 11km
                                                     away), with later up-scaling and connection to the National
                                                     Electricity Market.
                                                     Parlana is a high temperature EGS project yielding 200°C at a
                                                     depth of 3.6km. An independent assessment estimated total
                                                     inferred geothermal resources of 230,000 PJ. According to PTR,
                                                     only 1% of this would be required to run a 260 MW power plant
                                                     over a 30 year period.
                                                     Paralana is a joint venture between PTR, TRUenergy and Beach
                                                     Petroleum. PTR’s joint venture partners have a total investment
                                                     commitment of A$87 million. The joint venture partners recently
Source: Petratherm                                   received approval for a A$7 million Geothermal Drilling Program
                                                     grant. The joint venture partners have also lodged an application
                                                     under the A$435 million Renewable Energy Development
                                                     Program for a 30 MW project at Paralana (estimated cost of
                                                     A$200 million).
                                                     Spudding of the 4km deep Paralana 2 well is expected by mid-
                                                     June 2009.

                                                     Spanish Projects
                                                     PTR has four projects in Spain located in Madrid, Barcelona,
                                                     Tenerife and Congost.
                                                     PTR’s Madrid Basin Geothermal District Heating (GDH) Project is
                                                     located 40km north east of Madrid. The company recently drilled
                                                     five wells at the depth of 3-4km. The data from this drilling
                                                     program is currently being utilised in the feasibility currently in
                                                     progress for PTR’s Geothermal District Heating Project (8 MW)
                                                     which is expected to complete in June 2009.
                                                     PTR has entered into an agreement with Dalkia, a leading
                                                     European provider of energy services for the company’s
                                                     advanced Geo-Madrid Geothermal District Heating Project. The
Source: Petratherm                                   agreement provides for Dalkia to undertake due diligence with a
                                                     view to becoming a joint venture partner with PTR. Dalkia is one
                                                     of Europe’s largest energy services providers and is co-owned by
                                                     Veolia (66%) and Electricite de France (34%).
                                                     The Barcelona Project is located 25km north of Barcelona and is
                                                     highly prospective for both conventional and hot rock geothermal
                                                     resources.      PTR has applied for two new Geothermal
                                                     Investigation Licences (GIL) and is waiting for approval.

                                                     China Geothermal Exploration Program
                                                     PTR is nearing completion of its Federal Government funded joint
                                                     development program with Chinese government institutes to
                                                     identify high value geothermal projects in mainland China. The
                                                     company has identified several prospective projects and is
                                                     actively seeking a suitable joint venture partners to fund
                                                     development of these opportunities.




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                                      Geothermal Resources Ltd (GHT)

                                      Overview
                                      GHT holds two geothermal exploration licenses (GEL’s) in two buried granite
                                      terrains in South Australia that are considered highly prospective for substantial hot
                                      fractured rock geothermal energy sources.
                                      Both projects are well located within close proximity to power transmission and
                                      infrastructure.
                                      As at 11 June 2009, GHT had an undiluted Market Capitalisation of A$11m

                                      Board and Management
                                       Bob Johnson (Chairman), Chris Giles (Technical Dir), Ken Williams (Non-Exec Dir).

                                      Ownership
                                       Havilah Resources NL 63.5%.

                                      Key Assets
                                      Frome (100%), Crower (100%).

                                      Frome Project
                                      The Frome project is at the west of Broken Hill, targeting Curnamona Craton
                                      granites and comprises eight GEL’s covering 3,909 km2. The project is adjacent to
                                      the transmission line with direct connection into a major 220kV line at Broken Hill
                                      running from Mildura in Victoria.
                                      GHT has commenced an eight hole drilling program to establish geothermal
                                      gradients and heat flow.
                                      GHT commenced drilling of Frome 13 in 2009 and recently completed the hole at a
                                      depth of 1,800 metres. A bottom hole temperature of 96°C was recorded five days
                                      after drilling had ceased. Based on more than 20 individual downhole temperature
                                      measurements taken during the course of the hole, a geothermal gradient of
                                      approximately 40°C/km has been calculated.

                                      Crower Project
                                      Crower project is located south east of South Australia and comprises six
                                      tenements covering 2,948km. The project is near the Coonawarra region and close
                                      to the large Portland Aluminium smelter. Major power transmission lines cross the
                                      project area. The geothermal energy potential is enhanced by two natural
                                      geological attributes: 1) both hot sedimentary aquifer (HSA) and EGS geothermal
                                      resources are possible thereby allowing GHT to tap the reservoir that provides the
                                      best economic returns; and 2) published heat flows within the project are markedly
                                      higher compared to elsewhere in the Otway basin.
                                      Extensive historical seismic data exists within the region, with current work focused
                                      on computer enhancing this data to develop a 3D geological model or the project
                                      area. This will assist in targeting optimum target areas for HSA and EGS
                                      geothermal resources.




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                                                                                                            15 June 2009



                                      Torrens Energy Limited (TEY)

                                      Overview
                                      TEY has been granted 25 GEL’s predominantly in South Australia encompassing an
                                      area of 11,542km2 of prospective EGS ground which lies along the national
                                      transmission grid.
                                      In July 2008, TEY signed a Geothermal Alliance Agreement with AGL Energy
                                      Limited (AGL) under which TEY and AGL will jointly develop geothermal resources
                                      for generation into the National Electricity Market. Under the agreement, AGL
                                      agreed to subscribe for a 10% shareholding in Torrens for A$2.2 million. AGL also
                                      received a first right of refusal to earn 50% of any geothermal resource project
                                      identified by Torrens by sole funding the completion of a deep confirmation well
                                      (estimated at A$10 million). The two companies also agreed to jointly explore new
                                      opportunities in the geothermal sector.
                                      TEY has projects grouped under four areas including Adelaide Plains, Barossa-
                                      Clare, Torrens and Melbourne.
                                      TEY has a development goal of generating 300MWe power plants by 2013-2014.
                                      As at 11 June 2009, TEY had an undiluted Market Capitalisation of A$9m.

                                      Board and Management
                                       Dr Dennis Gee (Non-Exec Chairman), David Eiszele (Non-Exec Dir), John Canaris
                                      (Exec Dir), Marcus Gracey (Non-Exec Dir), Chris Matthews (Chief Geologist), Bruce
                                      Godsmark (Exploration Manager) and Jade Styants (Company Secretary).

                                      Ownership
                                      AGL Energy Group (9.99%), Lefroy Resources Limited (6.1%) & John Canaris
                                      (5.6%).

                                      Key Assets
                                      Parachilna (100%), Adelaide Plains (100%), Port Augusta (100%), Beltana (100%),
                                      Port Adelaide (100%), Port Pirie (100%) & Barossa-Clare (100%).

                                      Torrens
                                      The Torrens project area comprises 12 GELs (6,000km2) targeting the Eastern
                                      Gawler Craton within the Torrens Hinge Zone. This area is part of the Olympic
                                      Domain (which hosts the Olympic Dam Cu/U/Au/Ag mine) and is characterised by
                                      the occurrence of uranium deposits which have high heat generating capacity.
                                      The area comprises four projects being Parachilna, Lake Torrens, Port Augusta and
                                      Beltana. The majority of TEY’s exploration is currently focussed on the Parachilna
                                      project.
                                      A successful exploration program carried out in Parachilna in the 2008 financial
                                      year revealed high heat flow values with temperatures of over 250°C predicted
                                      shallower than 5,000m. Work carried out by independent experts in August 2008
                                      yielded an inferred resource estimate of 780,000 PJ at Parachilna.
                                      Recent exploration heat flow drilling at Port Augusta recorded excellent modelled
                                      temperatures from the Davenport substation. Heat flows recorded 101MW/m2 with
                                      modelled temperature of approximately 200°C at 4,300m depth. The result is well
                                      above TEY’s target heat flow and the temperature required for geothermal power
                                      production.




Equities Research – Geothermal Energy in Australia                                                                     37
                                                                                                                 15 June 2009




                                      Adelaide Plains
                                      TEY has five GELs covering 3,505km2 in the Adelaide Plains area. The project area
                                      lies on the coast with the southern part of the GEL’s reaching the northern suburbs
                                      of Adelaide. The majority of the Adelaide Plains project area is very close to the city
                                      and within close proximity to fossil fuel power stations (Torrens Island power
                                      station).
                                      In February 2009, TEY announced it had commenced its 2008-2009 drilling
                                      program which will target the Adelaide Plains and Port Augusta projects. These two
                                      projects will be drilled for a total of approximately 3,000m over six holes by applying
                                      a combination of shallow and heat flow drilling using TEY’s 3D temperature field
                                      modelling methodology. The drilling program is fully funded and supported by a A$3
                                      million Matched Grant under the Australian Government’s Renewable Energy
                                      Development Initiative.
                                      Using existing drill holes in the area, the heat flow estimates from south of the
                                      Project area range between 80 and 100MW/m2. From temperature modelling based
                                      on existing data estimates that the temperature of 200°C may exist at a depth of
                                      5,000 metres close to the northern suburbs of Adelaide.

                                      Barossa-Clare Project
                                      The Barossa-Clare Project has four GELs totalling 2,000km2. The thermal
                                      conductivity measurements results indicate the sediments in Barossa-Clare project
                                      have good insulating properties.
                                      The project is also adjacent to infrastructure, services and the national power grid.
                                      However, the geological nature of the basement is not well understood. The heat
                                      flow values estimate in the immediate vicinity of the Project average 89MW/m2.




Equities Research – Geothermal Energy in Australia                                                                          38
                                                                                                            15 June 2009



                                      Greenearth Energy Ltd (GER)

                                      Overview
                                      GER listed on the ASX in Feb. 2008 and was formed by Lakes Oil, Victoria
                                      Petroleum and a group of private investors in July 2006. It has three permits and
                                      covers 18,795km2 in Victoria. GER is planning to apply for more permits when the
                                      Victorian Government re-opens the tender process for 19 other geothermal blocks.
                                      GER completed two geothermal resource estimations in December 2008 and
                                      January 2009 by independent consultants which revealed an inferred resource of
                                      263,600 PJ across a very portion of its permits in Victoria.
                                      In March 2009, GER acquired a 33% shareholding in Pacific Heat and Power Pty
                                      Ltd, a high energy/environmental cost solutions provider with access to innovative
                                      electricity generation technologies.
                                      In March 2009, GER also published its roadmap for a 10.7MW geothermal power
                                      plant development at Geelong on one of its permits.
                                      GER also recently established a multi-party joint venture with Geo Energy Pty Ltd,
                                      Investment Resources LLC and Satini Group which aims at developing a suite of
                                      exploration and development opportunities across Indonesia.
                                      In April 2009, GER lodged an application to the Federal Government’s Renewable
                                      Energy Development Program with funds earmarked for GER’s proposed power
                                      plant in Geelong. Total project cost is A$63M and the grant application is for
                                      A$19M. Successful applicants will be announced in August/September 2009.
                                      As at 11 June 2009, GER had an undiluted Market Capitalisation of A$7m.

                                      Board and Management
                                      Simon R. Molesworth AM QC (Chairman), Mark Miller (MD), Robert J. Annels (Non-
                                      Exec Dir), John T. Kopcheff (Non-Exec Dir), Robert L. King (Exec Dir), Vicki M.
                                      Kahanoff (Company Secretary)

                                      Ownership
                                       Wasabi Energy 7.2%, Victoria Petroleum NL 12.5%, Lakes Oil NL 17.5%

                                      Key Assets
                                       Gippsland Basin (100%), Latrobe Valley (100%) & Otway Basin (100%).

                                      Gippsland Basin and Latrobe Valley
                                      GER holds two GEPs, GEP 12 covers the north-west of the Palaeozoic Basement
                                      and GEP 13 covers a large part of the onshore Gippsland Basin to the coast. The
                                      sedimentary pile is in the range of 3km – 4km thick. The Latrobe Valley Group
                                      contains coal deposits 500m thick and temperatures of 150ºC or more can be
                                      expected at a depth of 3,000m.
                                      The second phase of heat mapping was recently concluded on these permits. The
                                      temperature measurement and thermal conductivity analysis was designed to
                                      validate and build upon the first phase of heat flow mapping carried out in 2007.
                                      In the Latrobe Valley area measurements from eight wells confirmed high heat flows
                                      ranging from 63 to 101 MW/m2. The wells ranged in depth from 172m to 739m.

                                      Otway Basin, Geelong
                                      GER’s permit GEP 10 is located at the Daylesford area in the Otway Basin.
                                      Estimated temperature in the Hindhaugh Creed area is around 150ºC at 3,000m
                                      and has the potential to develop conventional hydrothermal and EGS.
                                      GER is currently carrying out heat flow mapping and a Magneto-Telluric survey in
                                      the area in addition to the production of the Geelong Region Roadmap for the
                                      Geothermal Power Plant.



Equities Research – Geothermal Energy in Australia                                                                     39
                                                                                                                 15 June 2009



                                      GreenRock Energy (GRK)

                                      Overview
                                      GRK has a portfolio of geothermal interests in South Australia (Olympic Dam,
                                      Patchawarra, Great Artesian Basin and Upper Spencer Gulf), Western Australia
                                      (Perth Basin) and Europe (Hungary).
                                      GRK’s licenses at Olympic Dam have an inferred resource potential of 120,000 PJ
                                      which covers 14% of GRK’s permit area in the region.
                                      GRK’s Perth and Hungary permits are low risk projects which offer the prospect of
                                      producing cash-flow at a relatively low capital and operating cost.
                                      GRK was also recently announced as the preferred applicant for three additional
                                      permits in the Perth Basin.
                                      As at 11 June 2009, GRK had an undiluted Market Capitalisation of A$9m.

                                      Board and Management
                                       Adrian Larking (Managing Dir), Alan Knights (Exec Dir), Jorg Baumgartner (Non-
                                      Exec Dir), Scott Spencer (Non-Exec Dir), Richard Beresford (Non-Exec Dir) & Nigel
                                      Hodder ( Comp Secretary)

                                      Ownership
                                      Perilya Limited (9.1%), National Nominees Limited (8.4%), PKA Investments Pty Ltd
                                      (5.8%)

                                      Key Assets
                                      Olympic Dam (100%), Perth Basin (varying to 100%), Upper Spencer Gulf (100%),
                                      Hungary (50%)

                                      Olympic Dam (Blanche) Project, South Australia
                                      GRK’s geothermal license areas at Olympic Dam cover 2,899km2 surrounding
                                      Olympic Dam Mine and the Roxby Downs township which is close to a large
                                      potential customer base. This project is close to the existing power infrastructure
                                      which is linked to the major cities in eastern Australia.
                                      Hydraulic fracture testing was carried out in February 2008. The favourable results
                                      have provided information to commence the design of the two deep evaluation
                                      wells. Plans are for drilling to commence in 2009 which is subject to the
                                      procurement of a suitable drilling rig and the finalisation of a farm-in JV.
                                      The new geothermal reserves and resources estimation of a specific 460km2 area
                                      of interest at the Olympic Dam geothermal project has indicated the stored heat at
                                      120,000 PJ which is many times the quantity required to power a 400 MW power
                                      station over a 30 year project life.
                                      The next step to commercial exploitation of the resource requires GRK to drill two
                                      deep wells and circulate water underground to recover heat. GRK has completed all
                                      necessary field work in preparation for drilling. GRK is currently in search of a joint
                                      venture partner and an Australian Government grant (worth A$7 million) to assist in
                                      funding the drilling programme.
                                      GRK is planning to have 100 MW of capacity installed at the project with initial
                                      power generation by 2012.

                                      Western Australia
                                      GRK was also recently announced as the preferred applicant for three additional
                                      permits in the Perth Basin. In addition GRK was named preferred applicant for 12
                                      other permit areas in the Perth and Collie Basins in joint venture with other parties.
                                      Granting of all of these permits will make GRK the largest holder of tenements in
                                      the Perth Basin.
                                      GRK has joint ventures with the University of Western Australia and AWE in the

Equities Research – Geothermal Energy in Australia                                                                          40
                                                                                                              15 June 2009

                                      region.

                                      Upper Spencer Gulf, South Australia
                                      GRK was granted 5 GELs which cover an area of 1,938km2. Two GEL applications
                                      adjoining this area have still to be decided. Parts of these tenements are underlain
                                      by the prospective Hiltaba Suite granite rocks. These granites have the potential to
                                      provide a renewable energy source for energy production.
                                      Low cost temperature logging was carried out in three accessible shallow drill holes
                                      in the geothermal license areas of the Spencer Gulf. Together with logging carried
                                      out at the start of 2009 this work has confirmed the anomalous temperatures in the
                                      area which are likely due to the presence of thermally anomalous Hiltaba Suite
                                      granites in the area, the same type of granite which is the main heat source at the
                                      Olympic Dam project. High surface heat flow measurements of around 100 MW/m2
                                      announced recently by another company with permits close to GRK’s confirms the
                                      high heat flow potential in this part of the area.

                                      Great Artesian Basin
                                      GRK has eleven exploration licences which occupy an area of approximately 5,038
                                      km2 in the Great Artesian Basin (GAB).
                                      The GAB is one of the largest artesian groundwater basins in the world and
                                      underlies about one-fifth of the Australian land mass. The GAB contains artesian
                                      water held in permeable sandstone layers which are over 3,000 metres thick in the
                                      deeper parts of the Basin.

                                      Hungary
                                      GRK, along with MOL Plc, are shareholders in the Hungarian geothermal energy
                                      company, Central European Geothermal Energy Private Company Limited (CEGE).
                                      MOL Plc. is a major European oil and gas company which holds the largest
                                      hydrocarbon leases in Hungary. CEGE's mission is to become a market leader in
                                      geothermal energy in Hungary through the exploration and development of
                                      geothermal power plants and the subsequent production and sale of geothermal
                                      sourced electricity into the Hungarian market.
                                      Three geothermal prospects in Hungary have been identified from the evaluation of
                                      MOL's extensive petroleum well data and seismic mapping.
                                      Detailed evaluation is being undertaken to determine the precise locations for
                                      drilling the geothermal wells at these prospects, in conjunction with the processes
                                      for obtaining formal title to geothermal tenements.




Equities Research – Geothermal Energy in Australia                                                                       41
                                                                                                                  15 June 2009



                                      Kuth Energy Ltd (KEN)

                                      Overview
                                      KEN holds three Special Exploration Licences (SEL) in Tasmania totalling over
                                      15,000 km2, The geothermal energy is explored for power generation and direct use
                                      applications, such as industrial drying and building heating. Both projects are on the
                                      Tasmanian power grid, which is connected to the National grid via Basslink.
                                      KEN is also assessing various projects in the South West Pacific including Vanuatu,
                                      Fiji and Papua New Guinea.
                                      KEN is currently focussed on the interpretation and progression of its Magneto-
                                      Telluric survey commissioned across the company’s main Tasmanian tenement,
                                      SEL26/2005. In 2009 KEN will continue with its program of targeted geophysical
                                      data acquisition to better define the location with the intention of commencing a
                                      drilling program in the second half of 2009.
                                      As at 11 June 2009, KEN had an undiluted Market Capitalisation of A$4m.

                                      Board and Management
                                      Dr John Bishop (Chairman), Paul Broad (Non-Exec Dir), Stephen Bartrop (Non-
                                      Exec Dir), George Miltenyi (Non-Exec Dir), David McDonald (Managing Dir), Dr
                                      Roger Lewis (Project Investigation), Dr Fiona Holgate (Operations Manager – Aus)
                                      & Craig Johnson (Business Development Mgr)

                                      Ownership
                                      John Bishop (13.3%), Roger Lewis (9.7%), Stephen Bartrop (5.6%), George
                                      Miltenyi (5.2%) & Malcolm Ward (5.0%)

                                      Key Assets
                                      Tasmania Project (SEL26, SEL45 and SEL68) - 100%, Vanuatu (two geothermal
                                      licenses) – 100%

                                      Tasmania Project
                                      KEN holds three SELs in Tasmania, SEL26, SEL45 and SEL68 covering a total
                                      area of 15,709km2. Results from KEN’s Magneto-Telluric survey are encouraging
                                      with the apparent extension of a deeply buried electrically-conductive zone (known
                                      as the Tamar Conductivity Zone or TCZ) that was first identified in the Tamar
                                      region. The survey has now revealed that this major geological fracture extends
                                      further south directly towards the preliminary geothermal target zone in central
                                      eastern Tasmania and has been identified from KEN’s shallow heat flow mapping
                                      program.
                                      The company has commissioned further Magento-Telluric studies to confirm the
                                      continuation of the TCZ into KEN’s geothermal target zone.
                                      Recent completion of a further 10 holes from KEN’s shallow drilling and heat flow
                                      estimation program has provided a indication of the existence of a hot-rock
                                      geothermal anomaly in central eastern Tasmania. Several new heat values have
                                      been recorded defining a large area (approximately 4,170km2) of high heat flow
                                      (>90 MW/m2).
                                      KEN is currently preparing to submit an application for the 2nd round of the
                                      Australian Government’s Geothermal Drilling Programme which provides grant
                                      funding of up to A$7 million.
                                      The results from KEN’s 2007 gravity survey revealed the possibility for future
                                      mineral exploration in SEL68. This tenement totalling 1,538km2 and lies mostly
                                      within the KEN’s main geothermal tenement SEL26. KEN has commissioned a
                                      detailed structural interpretation to identify its potential value and does not intend to
                                      undertake mineral exploration in its own right.




Equities Research – Geothermal Energy in Australia                                                                            42
                                                                                                                15 June 2009




                                      Queensland
                                      KEN is the preferred tenderer for EPG7 and EPG9 in Queensland and is planning to
                                      develop these tenements as a supply source for the mining sector and electricity
                                      grid users. EPG7 lies adjacent to the previous Reserved Area 315 which is
                                      expected to be developed by a Chinese aluminium company for bauxite. The
                                      temperature gradient is measured at 50 ºC/km in the sediments area from
                                      petroleum wells.

                                      SW Pacific Project, tenement applications in process
                                      KEN has two strategies for conventional geothermal power in the SW Pacific;
                                      replacement of high cost diesel generated power and targeted locations with the
                                      potential to develop large amounts of power for aluminium smelters and other
                                      similar high-usage mining projects. Tenement applications have been lodged in
                                      PNG (645km2) and Fiji (700km2).
                                      KEN was recently awarded two geothermal exploration licenses in Vanuatu for
                                      three years. Both licenses encompass an area of 100km2 and incorporate known
                                      hot springs. KEN is currently investigating its next steps with respect to starting an
                                      initial exploration program.




Equities Research – Geothermal Energy in Australia                                                                         43
                                                                                                                 15 June 2009



                                      Hot Rock Limited (HRL)

                                      Overview
                                       HRL listed on ASX in November 2007 and currently owns five permits in the Otway
                                      Basin in Victoria covering 28,178km2 making it one of the the largest holders of
                                      geothermal acreage in Australia The company plans to generate geothermal energy
                                      from HSA sedimentary geothermal systems over five tenements. HRL’s work is
                                      focused on its flagship Koroit Project in the Otway Basin, within GEP-8 preparing for
                                      its proof of project concept program.
                                      HRL’s three year business plan is to develop a 50MW of geothermal demonstration
                                      power plant and define a total geothermal generating capacity of at least 1,750MW
                                      over its permits.
                                      As at 11 June 2009, HRL had an undiluted Market Capitalisation of A$7m.

                                      Board and Management
                                      Norm Zillman (Chairman), Mike Sandy (Non-Exec Dir), Dr Mark Elliott (Managing
                                      Dir), Peter Barnett (Chief Operating Officer) & Paul Marshall (CFO)

                                      Ownership
                                      Norm Zillman (12.3%), Chimaera Capital Limited (12.3%), Dr Mark Elliott (12.3%)
                                      and Australian Heritage Group Pty Ltd (8.2%).

                                      Key Assets
                                      Otway Basin – 100% (GEP’s 6-9 & 23), Queensland – 100% (EPG 19, subject to
                                      approval).

                                      Otway Basin, Victoria
                                      HRL holds five GEP’s in Victoria, GEP 6, GEP 7, GEP 8, GEP 9 and GEP 23
                                      covering a combined area of 27,521km2. This area has the most promise for
                                      relatively shallow geothermal resources at a commercial temperature.
                                      HRL advanced its assessment of its newly granted GEP 23 covering the northern
                                      section of the Penola Trough in Victoria and announced a geothermal discovery
                                      based on recently released data from a previous drilled petroleum well which
                                      reported the highest temperature in the Otway Basin of 158°C at a depth of 3,702m.
                                      HRL is focused on its flagship Koroit Project. The proof of project concept program
                                      will consist of drilling and testing two appraisal wells into the Koroit Hot Sedimentary
                                      Aquifer reservoir to verify temperatures and well flow rates.
                                      Interpretation of the Magneto Telluric survey data and detailed 3D geological
                                      modelling in preparation for drilling at Koroit was continued at the start of 2009 and
                                      will be completed mid 2009.
                                      Geothermal resource and reserve calculations have been completed subject to
                                      independent review and will be released when the results of the Magneto Telluric
                                      survey and structural interpretation have been completed.
                                      HRL is currently engaged in discussions with a number of potential joint venture
                                      partners and private equity groups who invest in renewable energy projects with
                                      respect to the Koroit project.

                                      Walsh Hot Spring, Queensland
                                      HRL holds exploration permit geothermal (EPG) 19 in Queensland. Two thermal
                                      springs have been identified in the permit area with recorded surface discharge
                                      temperatures of 42ºC and 56ºC. It is located within 75km of major transmission lines
                                      and electricity markets in north QLD.




Equities Research – Geothermal Energy in Australia                                                                           44
                                                                                                                               15 June 2009



Appendix 1: Reserve and resource definition
  Reserve and resource definitions
     Category                    Petroleum                              Geothermal                                  Mining
  Reserves           Petroleum Reserves are those            Geothermal Reserves are those            Ore Reserves are the economically
                     quantities of petroleum anticipated     portions of Indicated or Measured        mineable part of Measured and/or
                     to be commercially recoverable by       Geothermal Resources which are           Indicated Mineral Resources. They
                     application of development projects     deemed to be economically                include diluting materials and
                     to known accumulations from a           recoverable and technically              allowances for losses, which may
                     given date forward under defined        justified. Proved reserves are the       occur when the materials are
                     conditions..                            economically recoverable part of a       mined. Appropriate assessments
                                                             Measured Resource. Probable              have been carried out which
                                                             reserves are the economically            demonstrate at the time of reporting
                                                             recoverable part of an Indicated,        that extraction could reasonably be
                                                             and/or a Measured Mineral                justified.
                                                             Resource.                                Proved reserves are the
                                                                                                      economically mineable part of a
                                                                                                      Measured Mineral Resource.
                                                                                                      Probable reserves are the
                                                                                                      economically mineable part of an
                                                                                                      Indicated, and/or a Measured
                                                                                                      Mineral Resource.
  Resources          Contingent Resources are those          Geothermal Resources are                 Mineral Resources are
                     quantities of petroleum estimated to    Geothermal Plays which exists in         concentrations or occurrences of
                     be potentially recoverable from         such a form, quality and quantity        material of intrinsic economic
                     known accumulations, but the            that there are reasonable prospects      interest in or on the Earth’s crust in
                     applied project(s) are not yet          for eventual economic extraction.        such form, quality and quantity that
                     mature enough for commercial            The location, quantity, temperature,     there are reasonable prospects for
                     development (e.g. no viable             geological characteristics and           eventual economic extraction. The
                     markets, recovery dependent on          extent are known, estimated or           location, quantity, grade, geological
                     technology, evaluation at an early      interpreted from specific geological     characteristics and continuity are
                     stage).                                 evidence and knowledge.                  known, estimated or interpreted
                                                             Geothermal Resources are sub-            from specific geological evidence
                                                             divided, in order of increasing          and knowledge.
                                                             geological confidence, into Inferred,    Mineral Resources are sub-divided,
                                                             Indicated and Measured                   in order of increasing geological
                                                             categories.                              confidence, into Inferred, Indicated
                                                                                                      and Measured categories.
                     Prospective Resources are those         Geothermal Play is used as an
                     quantities of petroleum estimated to    informal qualitative descriptor for an
                     be potentially recoverable from         accumulation of heat energy within
                     undiscovered accumulations by           the Earth’s crust. It has no
                     application of future development       connotations as to the
                     projects. Prospective Resources         recoverability of the energy and
                     have both an associated chance of       does not necessarily imply the
                     discovery and a chance of               existence of a Geothermal
                     development.                            Resource or Reserve and
                                                             quantitative amounts of energy
                                                             should not be reported against it.
  Exploration        Category not defined.                   Data and information generated by        Data and information generated by
  results                                                    exploration programmes that may          exploration programmes that may
                                                             be of use to investors, which may        be of use to investors, which may
                                                             or may not be part of a formal           or may not be part of a formal
                                                             declaration of Geothermal                declaration of Mineral Resources or
                                                             Resources or Reserves.                   Ore Reserves.
  Total resource     Total Petroleum-initially-in-place is                                            Category not defined.
  initially in       the quantity of petroleum which is
  place              estimated to exist originally in
                     naturally occurring accumulations.
                     This includes the quantities
                     estimated to be contained in the
                     accumulation, plus that already
                     produced, plus that yet to be
                     discovered.




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                                                                                                                                                                                                                                                                                                                                                                                                                                               15 June 2009

  Comparison of reserve and resource systems

                                                                                 PETROLEUM                                                                                                                                                GEOTHERMAL                                                                                                                                                                   MINING

                                                               Petroleum reserves classification system                                                                                                                  Geothermal reserves classification system                                                                                                    Mineral resources and ore reserves classification system



                                                                                           Production                                                                                                                                                 Production                                                                                                                                                                Production




                                                                                                                                                                                                                        Economically




                                                                                                                                                                                                                                                                                                                                                                                            Economically
                                                               Commercial




                                                                                                                                                                                                                         recoverable




                                                                                                                                                                                                                                                                                                                                                                                             recoverable
                                                                                            Reserves                                                                                                                                             Geothermal Reserves                                                                                                                                                           Ore Reserves




                                                                                                                    Increasing chance of commerciality →




                                                                                                                                                                                                                                                                                 (Increasing chance of commerciality) →




                                                                                                                                                                                                                                                                                                                                                                                                                                                           (Increasing chance of commerciality) →
                                                                                     1P           2P           3P                                                                                                                           ~P90          ~P50
                                           Discovered PIIP
   Total petroleum initially in place




                                                                                                                                                                                                                                                                                                                                                                         Discovered MIIP
                                                                                                                                                                                                      Discovered EIIP




                                                                                                                                                                                                                                                                                                                                  Total minerals initially in place
                                                                                                                                                                 Total energy initially in place
                                                                            Proved        Probable      Possible                                                                                                                        Proved       Probable                                                                                                                                                     Proved       Probable




                                                                                                                                                                                                                                                                                          Modifying factors →




                                                                                                                                                                                                                                                                                                                                                                                                                                                                    Modifying factors →
                                                                                     Contingent Resources                                                                                                                                        Geothermal Resources                                                                                                                                                        Mineral Resources




                                                                                                                                                                                                                                                                                                                                                                                           economic extraction
                                                             commercial




                                                                                                                                                                                                                                                                                                                                                                                              prospects for
                                                                                                                                                                                                                                                                                                                                                                                              Reasonable
                                                                                     1C          2C            3C
                                                                Sub-




                                                                                                                                                                                                                                       Measured      Indicated                                                                                                                                                   Measured      Indicated
                                                                                                                                                                                                                                       Resources    Resources                                                                                                                                                    Resources    Resources
                                                                                          Unrecoverable                                                                                                                                             Unrecoverable                                                                                                                                                             Unrecoverable
                                                                                     Prospective Resources                                                                                                                                       Geothermal Resources                                                                                                                                                        Mineral Resources
                                        Undiscovered




                                                                                                                                                                                                   Undiscovered




                                                                                                                                                                                                                                                                                                                                                                      Undiscovered
                                                                                Low             Best         High




                                                                                                                                                                                                                                                                                                                                                                          MIIP
                                            PIIP




                                                                                                                                                                                                       EIIP
                                                                                                                                                                                                                                                                   Inferred                                                                                                                                                                  Inferred
                                                                                                                                                                                                                                                                  resources                                                                                                                                                                 resources
                                                                                          Unrecoverable                                                                                                                                              Unrecoverable                                                                                                                                                             Unrecoverable

                                                                                                                                                                                                                                                                   Exploration                                                                                                                                                               Exploration
                                                                                                                                                                                                                                                                     Results                                                                                                                                                                   Results

                                                                                                                                                                                                                                       ← Increasing geological knowledge and                                                                                                                                     ← Increasing geological knowledge and
                                                                               L ← range of uncertainty → H                                                                                                                                          confidence                                                                                                                                                                confidence
                                                                                                                                                                                                                                             L ← range of uncertainty → H                                                                                                                                              L ← range of uncertainty → H
                                                                                 P90            P50           P10                                                                                                                            P90           P50             P10                                                                                                                                         P90           P50            P10




                                                                                                                                                                                                                                                                                                                          Source: 2004 JORC Code
                                                                                                                                                           Source: 2008 Australian Geothermal Code


Reserve and resource data requirements

Equities Research – Geothermal Energy in Australia                                                                                                                                                                                                                                                                                                                                                                                                         46
                                                                                                                                             15 June 2009




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323 and their associates have received and may receive commissions or fees from these companies in relation to advice or dealings in securities.
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are estimates only. Such projections are subject to market influences and contingent upon matters outside the control of Wilson HTM and therefore
may not be realised in the future.
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or needs and because of that, any person should, before acting on the advice, consider the appropriateness of the advice, having regard to the
client’s objectives, financial situation and needs. If the advice relates to the acquisition, or possible acquisition, of a particular financial product – the
client should obtain a Product Disclosure Statement relating to the product and consider the Statement before making any decision about whether to
acquire the product. This communication is not to be disclosed in whole or part or used by any other party without Wilson HTM Ltd's prior written
consent.

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Our web site: www.wilsonhtm.com.au




Equities Research – Geothermal Energy in Australia                                                                                                            47

								
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