Sierra Geothermal in the balance: Canadian company braces for board battle

In Canada, Sierra Geothermal Power faces its second board shake-up attempt in less than a year. In July, a group of dissidents led by Richard Rule, President of Resource Capital Investments Corp. and General Partner to Exploration Capital Partners 2005 LP, requisitioned a special shareholders’ meeting to remove the board and replace it with an unnamed slate of nominees. The attempt failed.

This time around, Rule is intent on increasing the number of directors from six to thirteen and electing seven of his group’s nominees to form a majority. All of this will come to a head at a special shareholder meeting scheduled for January 26, 2010.

At stake is control of the company and its future as an independent entity – not to mention $11 million in equity financings and $10 million in DOE grants. SGP holds geothermal rights or options to 17 properties totalling more than 90,000 acres in Nevada and California, The company estimates the generation potential for these properties to be greater than 500 MW.

Letters to shareholders from both the dissident group and the current board have been circulating, each requesting support for their respective positions. Exploration Capital Partners holds 6,927,019 shares or 5.40% of SGP’s issued and outstanding shares. It also is Ram Power’s largest shareholder, with approximately 10% of that company’s shares. And the first attempt at a board change came after SGP refused a discount buyout during the creation of Ram over the summer.

Not surprisingly, its about the money. The current board at SGP argues that Rule wanted SGP to participate in the Ram transaction at a price equivalent to $0.186 per share, an 18% discount to the market price at the time (and a 31% discount to a recent market price of $0.27). Given Rule’s interests in Polaris Geothermal at that time, now part of Ram, SPG called the discount a conflict of interest, because a price premium went to shareholders of Polaris in the acquisition. A discount for SGP and a premium for Polaris tells the tale.

By coincidence, we ran an item in this week’s Digest noting that recent rollups in the geothermal space opens doors to capital markets as the resulting entities control more assets and talent. SGP shareholders could be benefit from this, which is not lost on the company’s management. In a letter to shareholder, SGP President Gary Thompson said, “While your Board is willing to consider any reasonable offer to acquire SGP, we would only be interested in a transaction that makes sense for SGP and all of its shareholders, and we intend to continue to question any effort to be bought out at less than fair value.”

All this is in many ways a good sign for the industry as a whole. There was little interest in geothermal companies just a few years ago. Now we witness a fight over the control of what is now one of the industry’s smaller players. We’ll keep an eye.