gdy sp to spike sharply

Nothing new here for geothermal watchers, but I suggest that anyone peering in from the sidelines have a look over Geodynamics and their upcoming potential. Worth a position in any growth-oriented portfolio, with the capacity to be a star ASX performer.



Geodynamics Limited (ASX:GDY/O) is Australia's leading Geothermal Energy developer. Aiming to develop their advanced-stage Cooper Basin Hot Fractured Rock (HFR) geothermal project, the company is perfectly positioned to exploit upcoming energy capacity constraints (Australian electricity production capacity will need to increase by 50% in just 20 years).

Geothermal Energy, being base-load, emission-free and renewable, is the ideal candidate for future energy requirements. Current estimates put the cost of production at $45/MWh, making geothermal cheaper than any alternative to coal, including nuclear, solar, wind and hydro power. Crucially, unlike coal power, GDY's HFR project will not require water to operate, as their granite bodies are already saturated with a superheated brine solution.

Australia has abundant geothermal resources, though GDY have secured the highest grade HFR resource ever discovered, with the highest thermal gradient in the country. The relationship between temperature and extraction efficiency (profitability) can be plotted as an exponential curve. As an example, from 210C to 270C there is in increase in power output of over 100% (as modeled by MIT). GDY's HAB2 well has recorded temperatures of 250C at 4300m, and temperatures of up to 290C are expected at 5000m.

As of 25/09/07, GDY have drilled over 2200m into HAB3, and are approaching the granite layer at 3700m. Having purchased Australia's most advanced onshore drilling rig (Lightning Rig), the company is more than capable of managing the high heat and variable high pressure associated with deep granite drilling. From the 3700m intersection, there will only be 600m of granites to drill until target depth of 4300m is reached, at which time flow tests will provide the final, conclusive evidence for the viability of HFR-style geothermal systems.

Hydraulic communication between the wells will be demonstrated before target depth is reached, demonstrating the crucial unknown variable (temperature, pressure, and saturation are already understood).

A successful flow test will be the first major step in shifting the way Australia generates power. There is no solution to our increased capacity requirements and environmental concerns that is as attractive as geothermal. GDY will produce electricity that is cheaper than any alternatives, produces no emissions, produces no toxic waste, requires no (or minimal) water, has an economic life of over 50 years per well, and is 100% base-load.

Construction of the demo plant (estimated at $20m) will begin soon after flow tests, where the company will be able to demonstrate the other major advantage they hold - exclusive rights to the Kalina Cycle. Proven to increase thermal conversion efficiency by up to 30%, this will allow GDY to dominate the sector and work towards reducing costs even further. For comparison, GDY's closest competitor may be looking at costs of up to $90/MWh, which is not as competitive as GDY's $45/MWh.

Lead times in the industry are huge. A booming resources sector and increasing mining capacity has created shortages in everything from rigs to personnel. Besides this, the huge cost of identifying a suitable geothermal resource, and the uncertain target depth conditions, provide barriers that will prove difficult to surmount for years to come. None of these issues apply to the cashed-up ($43.5m), advanced-stage GDY, who already know they are targeting the previously identified HFR reservoir that has smashed previous volume records (11 000 000 m3), and provided flow at a huge 20kg/sec.

Transmission costs (including initial construction costs and ongoing transmission losses) are expected to be around $8/MWh, due to the remote location of the Cooper Basin project (500km from nearest potential customer). A successful demonstration plant will greatly increase the bankability of the project, and will allow for most of these costs to be debt financed, reducing shareholder dilution. The first 500MW will have an output similar to the entire Snowy Hydro scheme, with the potential capacity being over 20 times higher than this (based on current 400 000PJ resource estimates).

Further drilling results for Australia's first commercial-scale HFR well are due on the 9th October.

The SP is going to spike very sharply over the coming months. Demand for electricity will continue to increase alongside heightened carbon awareness (with carbon to be priced in the near future). Governments are going to be knocking each other over to look like the ones who are doing the most to promote this ideal energy source.

Definite perfect storm material here. The confluence of economic, political and environmental factors will see geothermal as a dominant source of power in Australia.







(As a side note, target depth intersection, flow-tests, proof-of-concept, and demonstration plant construction are all scheduled to occur before the excercise date of GDYO)