Dramatic Announcement from Geodynamics – and the Shares Go Down
Leading Australian geothermal power developer Geodynamics struck it unlucky with its dramatic January 2008 stock market announcement that it had successfully drilled the world’s first commercial-scale hot fractured rock production well.

The Australian market had been in a slow decline since November. The more speculative resource stocks – those with no earnings - had been especially hit. Geodynamics was trading at $2.10 at the beginning of December. At one point in mid-January it had fallen below $1.50, and on January 21st, the day before the announcement it closed at $1.58.

The announcement the next day should have sent the stock soaring. In the right market atmosphere it probably would have. Instead, the market chose that day to plummet seven per cent, the biggest one-day fall in almost 20 years. Geodynamics closed down six per cent, recovering a modest 2.7 per cent the day after. It has risen a little more since then, but not a lot. The market is moving back to “quality”, which means revenues and profits.

Geodynamics is the Australian leader in the development of technology for hot fractured rock geothermal energy. This is a system for taking advantage of the intense heat of rocks that are well below the earth’s surface – around four kilometres deep – to provide power.

A “well” is drilled to the rocks, then water is injected. Geodynamics successfully reached this stage in 2003, with its Habanero 1 well. However, it is then necessary to drill another “production” well, to draw the hot water back to the surface to be harnessed as power, and it is here that Geodynamics encountered difficulties, to the extent that it was forced to abandon its Habanero 2 well.

Drilling of a new production well, Habanero 3, began in August 2007, and on January 22nd the company announced that just that morning it had reached the target depth of 4.221 kilometres.

According to the announcement:

The completion of drilling in Habanero 3 marks a significant milestone in the development of Geodynamics. Habanero 3 is the largest well of this depth ever drilled onshore in Australia and is the first commercial scale Hot Fractured Rock production well to be drilled.

The next steps to be undertaken to finalise Habanero 3 include:

• Inserting a slotted steel liner into the bottom open hole section of the well which is designed to maintain well integrity;

• Well completion including the installation of valves and pipe work to secure and control the well.

Just one week later the company reported that most of that work was also done, and that it would be starting the process of open circulation testing between Habanero 1 and 3. It expected this to be completed near the end of February (to be marked with the dramatic release of steam at the surface).

Geodynamics believes it can deliver its first electricity this year from a 1MW pilot plant. Eventual plans are for a 50MW plant by 2012, and a steady expansion in 50MW modules to 500MW by 2016.

At some point all this will surely be reflected in the share price.

February 1st, 2008

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