Alterra Power Wins Arbitration: Poised for Liftoff?

by JDH on December 3, 2016

I have written previously about AXY.TO – Alterra Power Corp., a “green” energy company that has contracts to produce geothermal energy in Iceland, run of river power in British Columbia, and they have an interest in a  wind farm in Texas.

The “crown jewel” in the Alterra portfolio is HS Orka hf (“HS Orka”), a 66% owned subsidiary based in Iceland.  HS Orka had a long-standing agreement to sell power to the local utility, Norðurál Helguvík ehf (“Norðurál”) (and no, I can’t pronounce it).

HS Orka was of the view that they had fulfilled all of the requirements of the power purchase agreement, and therefore it was finished.  Why is that important?  Because if the agreement has lapsed, HS Orka would be free to negotiate a new agreement, presumably at higher prices.  Norðurál disagreed, and wanted to keep the agreement in place, so they could continue to purchase power at favorable rates.

Arbitration ensued, and on Thursday the arbitration panel ruled that HS Orka was correct: the power purchase agreement had lapsed, and therefore it was at an end.

Not surprisingly, Alterra bounced over 13% up on Thursday, to close at $5.62, a gain of 68 cents.  Not bad.  On Friday it gave back 7 cents, to close the week at $5.55

So what’s next?

axy-dec2-2016The first issue is the $6 level.  Until Alterra can clear that, it is too early to say “$10, here we come!”  Why?  Financing.

Back in October Alterra completed a financing of just under $68 million, at $6 per share.  A number of insiders bought shares at that price, including the chairman, Ross Beatty, a Vancouver-based billionaire, who took $16 million of the financing, and now owns over 30% of Alterra’s outstanding common shares.  He’s not selling, but it’s obvious that a number of shareholders who bought in at $6 (at the time the shares were in the $6.50 range) sold their existing shares, and that drove the price down to $4.25 (which, in hindsight, was a great buying opportunity).

So, I conclude that there are probably a number of shareholders who bought at $6 and are looking to “get out even”, so there will be continued selling up to the $6 level.  Once Alterra is through that it should be good to go.

I have a position, so I may buy more on weakness, but I will be judicious in my purchasing.  A correction back to $5.25, or even $5.00 would not surprise me, so that’s where stink bid should be placed.

The Collapse of the Euro

In other news, this is the weekend that the next phase of the Euro collapse begins.  You can read my full thoughts from my October 29, 2016 where I predicted a Trump victory, and the Euro collapse, in a post titled: Why a Trump Victory and an Old Italian Bank May Cause a Market Crash.  You can read it for the full background, but the gist is this: there’s a referendum this weekend, the Italian government will lose, new elections will be called, anti-Euro forces will be elected, and Italy will begin the process of leaving the Eurozone.

euo-dec2-2016

I have taken a rather sizeable position in EUO – ProShares Ultrashort Euro, a security that attempts to give two times leverage on the downside to the Euro.  So, if the Euro drops 1%, EUO should increase by 2%.

I am currently flat on my position, so I may be early, or I may be wrong.  We shall see.  If there is a good bounce on Monday I will liquidate half of my position.  If not, I’ll hold and see what happens.

Gold

Finally, some quick thoughts on gold: it ain’t doing much at the moment.  Gold corrected down to $1,160, and bounced back up into the $1,175 range.  Is the correction over?  Probably not.  We shall wait and see.

I do however have another junior gold recommendation, so tune in next week for that.

Until then, thanks for reading, see you next week.