Polaris Geothermal Inc.
TSX VENTURE : GEO

Polaris Geothermal Inc.

August 30, 2005 11:40 ET

Polaris Geothermal Reports Second Quarter Results and Updates Progress on San Jacinto Project

TORONTO, ONTARIO--(CCNMatthews - Aug. 30, 2005) -

Reliability testing underway

Project generating commercial power

Polaris Geothermal Inc. ("Polaris Geothermal" or the "Company"), (TSX VENTURE:GEO) an emerging renewable energy geothermal power producer, wishes to announce its financial results for the three and six-month period ended June 30, 2005 and to provide an update on its San Jacinto Power Project. Polaris Geothermal is currently developing the 66 MW project on its San Jacinto-Tizate ("SJT") concession in Nicaragua. The SJT project is being developed in two phases. Phase I involves the development of 20 MW in two stages through the installation and construction of a power generating facility using proven production wells already existing on the concession.

Project Update

Construction of the first 10 MW phase of the project has been completed and both 5MW units have been tested and run synchronized to the national grid. In addition, the power plant's original metering devices, which did not meet the specifications outlined by Nicaraguan regulators, have been replaced by the substation electrical contractor and approved by the independent system auditors. Reliability testing has begun, however production output is currently limited to 5 MW due to restricted injection capacity in re-injection well SJ-6 caused by silica and mud build-ups in the well bore. Well testing is currently underway and remedial work to remedy the issue is being reviewed. Polaris anticipates recovering full injection capacity in the fourth quarter of 2005.

During the test period, Polaris will be selling power in the open market at a rate of $0.0595 per kilowatt hour until it is satisfied with reliability of its installations. Union Fenosa, the counterparty to the 20-year power purchase agreement ("PPA") is working closely with Polaris to finalize any remaining issues relating to terms and conditions of the PPA. First revenue from its open market sales is expected in September of 2005.

Financial Results

Polaris Geothermal reports its results in US dollars.

At June 30, 2005 Polaris Geothermal had $2.39 million in cash and short-term investments. Current assets totaled $3.86 million and current liabilities were $5.59 million. Long-term debt increased to $11.15 million as the Company drew down funds from a loan facility with its banking syndicate led by Standard Bank London.

In the quarter, the Company reported a loss of $970,572 ($0.03 per share) versus a loss of $978,575 ($0.04 per share) during the same period last year. For the six-month period, the Company reported a loss of $1.49 million ($0.04 per share) versus a loss of $1.09 million ($0.06 per share) during the same period last year. Net loss increased in the quarter and six-month period due to several factors including increased expenses relating to the Company's banking lines, costs associated with evaluation and feasibility studies on Polaris Geothermal's concessions in Nicaragua. In addition, the Company reported $271,152 in plant operating expenses in the quarter (nil in 2004) as the San Jacinto began producing power in July of 2005.

Business Highlights

Polaris Geothermal successfully executed the following strategic and operational initiatives during the quarter:

- On June 1, 2005, Polaris Geothermal announced that it had received a final geophysical survey report on the SJT concession in Nicaragua. The report, completed by Sinclair Knight Merz, ("SKM"), world leading independent geoscientific consultants, indicated that the western and eastern resource sectors of this concession are spatially connected and that the combined resource area is larger than previously estimated. SKM assigned a 90 percent probability that the entire resource contains energy sufficient to support production of 200 MW of power over a 20-year period. The final results represented a 16 percent increase over SKM's preliminary findings announced on April 20, 2005.

- On June 10, 2005 Standard Bank made an equity investment in Polaris Geothermal through a non-brokered Cdn.$2.415 million private placement.

- On June 20, 2005, the official inauguration of the SJT Power Plant was held at the plant site in Nicaragua, and attended by senior government officials including members of the energy, economics, and foreign investment ministries. The inauguration ceremony was presided over by Enrique Bolanos Geyer, President of the Republic of Nicaragua and acknowledged the successful completion of construction on the initial 10 MW phase of the project.

Comparative summary results for three and six-month period ended June 30, 2005 are shown in US dollars in the following tables. Additional information is contained in the Company's financial statements, which are available for review on the SEDAR website (www.sedar.com).



Condensed Summary Balance Sheet as at
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In US dollars June 30, 2005 December 31, 2004
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Current assets $3,860,612 $3,935,537
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Total assets 43,249,425 37,214,806
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Current liabilities 5,594,794 4,613,968
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Long term debt 11,150,676 7,673,522
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Non-controlling interest 2,939,084 3,816,700
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Total Liabilities 19,684,554 16,104,190
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Shareholder's equity 23,564,871 21,110,616
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Condensed Summary Statements of Operations
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In US dollars except For the six month For the three month
per share data period ending period ending
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June 30, June 30, June 30, June 30,
2005 2004 2005 2004
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Revenue - - - -
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Plant Operating Expenses 271,152 - 271,152 -
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Operating loss 271,152 - 271,152 -
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Expenses 1,410,188 1,163,163 840,338 964,270
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Loss before controlling
interest 1,676,319 1,186,601 1,092,727 1,045,801
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Net Loss 1,488,860 1,094,862 970,572 978,575
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Weighted average number
of shares outstanding 34,565,571 19,155,625 35,022,947 21,887,789
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Loss per share 0.04 0.06 0.03 0.04
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Polaris Geothermal is a renewable energy resource company currently focused on the development of geothermal projects. Polaris Geothermal Inc. has 36,476,873 Class A common shares issued and outstanding.

FORWARD-LOOKING STATEMENTS

This press release includes certain forward-looking statements. All statements regarding potential estimated capacity, reserves and future plans and objectives of Polaris Geothermal, are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements. Important factors that could cause actual results to differ materially from these forward-looking statements include: the ability to extract sufficient geothermal fluid of usable quality from the resource, in a cost-effective manner, the ability to remedy the silica and mud build ups in well SJ-6, the ability to successfully conclude negotiations with Union Fenosa respecting the PPA and other factors disclosed in Polaris Geothermal documents filed from time to time with regulatory authorities.


The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.

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