State’s newest mining bonanza: Hot water
Barely more than two years ago, Continental Ridge Resources was yet another Vancouver-based mining company with little more than hopes for a handful of far-flung gold prospects.
Today, the eternal optimism of miners remains the theme for the company, but it sees its bright future in hot water rather than gold.
Renamed Nevada Geothermal Inc., the company these days is exploring land holdings near Winnemucca in hopes that it might build electric generating plants fueled by geothermal activity.
Its strategy, however, is nearly identical to that of a mining company: Find a resource.
Drill to define the size of the resource.
Raise the money to bring the project to reality.
The company this autumn is continuing to drill holes on its 7,500-acre Blue Mountain project about 20 miles west ofWinnemucca, President Brian Fairbank said last week.
The geothermal possibilities of the land initially were discovered by gold mining firms in the mid-1980s.
The holes drilled by Nevada Geothermal are finding water temperatures of about 330 degrees 1,500 feet below the surface, and the holes drilled 3,500 feet apart show the supply of hot water appears to be large.
“Those temperatures are hot enough to produce electrical power,” Fairbank said.
Next up is drilling of two larger exploration holes with a price tag of about $1 million each.
That work is scheduled for early 2005, Fairbank said.
That cost is daunting to a company with no income.
Department of Energy has been providing some modest grants $95,000 for drilling most recently and publicly held Nevada Geothermal has raised a bit more than $2.5 million in a couple of private placements of its common stock.
“It is difficult to raise capital,” Fairbank said.
The recent spike in oil prices which makes geothermal projects more promising has helped open the doors to some potential investors, he said.
So does the possibility of federal tax credits for power produced by renewable sources.
If President Bush signs the corporate tax bill that includes those credits,Nevada Geothermal might accelerate its two-year schedule for development of Blue Mountain.
If the exploration results justify development of a full-blown generating plant, Fairbank will be knocking on more doors.
A very preliminary study conducted for the company estimated the cost of a 30- megawatt power plant at Blue Mountain at about $65 million.
(Thirty megawatts is enough power to serve about 8,000 households.)
Fairbank figures Nevada Geothermal would need to come up with 20 to 30 percent equity in the plant that’s $13 million to $19 million and finance the rest through debt.
Typically, the contract to sell the power provides collateral that backs a loan for the construction of a geothermal plant.
That’s another hurdle for Nevada Geothermal.
Unlike gold miners,whose production ends up in a worldwide market,Nevada Geothermal has but a couple of potential customers for the electricity it might produce.
One is Sierra Pacific Power, which is required by state mandate to a steadily increasing amount of power from renewable sources.
The utility regularly makes requests for proposals from geothermal
developers, and Fairbank hopes his company will be a position to enter a bid the next time Sierra Pacific calls for proposals.
That’s likely to be in 2005, a utility spokeswoman said.
Selling to Sierra Pacific, however,would create yet another cost for Nevada Geothermal construction of a 15-mile line to deliver power from Blue Mountain to Sierra Pacific’s grid.
Another alternative, Fairbank said, is selling power from Blue Mountain to big mining companies in northern Nevada.
For mines, power is the second biggest cost behind labor, and the industry is searching for ways to control those costs.
Even if Barrick Goldstrike and Newmont Gold go ahead with plans to build their own generating plants, Fairbank said Nevada Geothermal still might have a market for its power.
If those mining companies follow through with plans to sell some of the power from their new plants to Sierra Pacific, they’ll be subject to the state requirement that part of their production must come from renewable sources.
Blue Mountain’s production, Fairbank said, could help mining companies meet that requirement.
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