U.S. Geothermal Inc.

U.S. Geothermal Inc.

September 04, 2012 09:00 ET

U.S. Geothermal Inc.: Annual Letter to Shareholders

BOISE, IDAHO--(Marketwire - Sept. 4, 2012) - U.S. Geothermal Inc. (NYSE Amex:HTM)(NYSE MKT:HTM)(TSX:GTH) -

To the Shareholders of U.S. Geothermal Inc.:

We have witnessed a significant increase in the volatility and uncertainty of the global economy and capital markets over the past year. These conditions have put tremendous pressure on our share price, which began fiscal year 2011 at $1.10 per share and ended at $0.52 per share, and have overshadowed the remarkable advancements made by U.S. Geothermal Inc.: successful well repairs at Raft River, commercial operation of the new power plant at San Emidio and construction of the new Neal Hot Springs power plant to over 90% complete.

The company today has a diversified base of electrical energy production located in three western states. We have equity interests in four significant power projects with two of them already producing and selling electricity, one of them very near producing and selling electricity, and one project in advanced stages of exploration and development.

A look back at the achievements of the past fiscal year, which ended March 31, 2012, are impressive: an independent reservoir certificate was received for Neal Hot Springs; complex repairs were successfully completed for wells RRG-7 and RRG-2 at Raft River; a new 25 year power purchase agreement was signed and approved and a $7.5 million bridge loan was secured for San Emidio; a new and experienced member was added to strengthen the board of directors; funding began under the terms of a $96.8 million project loan at Neal Hot Springs; and construction activities advanced substantially at both Neal Hot Springs and San Emidio.

For the year ended March 31, 2012, we experienced a loss of $6,308,117 ($0.07 per share), which is indicative of the high level of activity related to the Raft River well repairs, shut down of the old plant and development of the new plant at San Emidio, exploration drilling at San Emidio and Gerlach, new project development, financing, and management incentive to support our growth initiatives. The balance sheet includes non-recourse debt in support of project construction and about $8.7 million in cash.

Major efforts were made by the development team to advance the company's two active construction projects toward completion. These are innovative power plants being deployed at San Emidio and Neal Hot Springs. As such, a series of technical matters, including unwanted vibration, were encountered and overcome but caused a delay in the startup at San Emidio. Commercial operations were declared for Unit I at San Emidio on May 25, 2012. The plant operates at a high level of efficiency. Electrical energy from the new power plant is being sold at an average rate of $89.75 per megawatt hour, subject to a 1% annual escalator, under the terms of a 25 year power purchase agreement. The new San Emidio power plant is expected to generate approximately 85,800 megawatt hours of electrical power each year.

Neal Hot Springs saw a significant amount of construction work completed according to schedule and budget. The plant, which is over 90 % complete, is composed of three modules each similar in size and configuration to the new San Emidio unit. Due to lack sufficient permeability in an injection well drilled during the year, we had an unexpected cost increase related to the drilling budget. To cover the cost increase, our partner Enbridge Inc. provided additional funds in exchange for an increased stake in the project. Neal Hot Springs is expected to declare commercial operation in the 4th quarter. The plant is expected to produce about 185,000 megawatt hours annually and the project will sell its power at an average rate of $99.00 per megawatt hour in 2013.

At Raft River the work undertaken to repair leaking lap joints on two of the existing wells was successful. The project is now operating near original the original output level and is expected to generate some 83,200 megawatt hours annually. Raft River also generates revenues and cash for the company and recently we returned to the original accounting method and now consolidate the project on our books.

Today the company is better poised than it has ever been to achieve its long stated objectives of developing a proven geothermal power company with sustainable revenues, earnings, and cash flows. The electricity from each of these three projects is being sold under 20 or 25-year power sales agreements. The long term sales provide a solid foundation for the company as we continue to develop new geothermal power projects in the future. With all three power plants operating in calendar year 2013, the annual base load power generation is expected to be 354,000 megawatt hours. Our ownership of Raft River is 50%, San Emidio is 100%, Neal Hot Springs (yet to be calculated) is about 60% and El Ciebello is 100%.

Project Annual MW Hours
Raft River 83,200
San Emidio I 85,800
Neal Hot Springs 185,000
Total Operating 354,000
San Emidio II 85,800
El Ciebello 208,000
Total Planned 293,800
Total Operating and Planned 647,800

The U.S. Geothermal management team has now successfully completed the development and construction of three geothermal power plants: Raft River Idaho in 2008, San Emidio Nevada in May 2012 and Neal Hot Springs Oregon expected in the 4th quarter of 2012. Key activities for the next several months include completion of long-term financing at San Emidio and declaration of commercial operations at Neal Hot Springs. The development team is ready to move to the next challenge. At the same time our operations subsidiary, U S Geothermal Services, will now operate the three plants by employing collective efficiencies and skills to keep the cost structure low and seek continuous improvements. U S Geothermal Services earns a fee at each operation.

Given the current weakened market for green power in the United States (due to, among other reasons, low natural gas prices) the development team will now focus on two projects: our Unit II at San Emidio and our El Ciebello steam geothermal project. At San Emidio we retain the option to add a second unit under the existing power purchase and transmission agreements. The second unit would be very similar to Unit I except it would be air cooled. We have prequalified the second unit for the tax cash grant eligibility with the initiation of construction of its production wells. We must complete Unit I long-term financing before we can secure financing for Unit II. We are pleased to learn that Congress may extend the very important tax benefits beyond 2013 since we may not have the Unit II plant online by then so may not receive the 30% cash grant.

We hold geothermal energy rights to 100 square kilometers located adjacent to Guatemala City. The site contains the advanced El Ciebello geothermal project in addition to many other geologic features that indicate strong geothermal potential across the area. The El Ciebello project is a planned 25 MW steam power plant based on current information derived from five existing production wells drilled by previous owners and geophysical studies conducted in the past. The plant is planned to produce 208,000 megawatt hours annually. The existing wells need to be deepened and new wells need to be drilled to confirm reservoir size and commerciality.

The electrical energy market in Guatemala is dominated by expensive imported coal and fuel oil and favors the development of geothermal power at attractive power prices. We are currently in negotiations for a long term power sales agreement that is expected to be at favorable pricing to provide attractive returns to investors.

One final housekeeping matter: from now on we will be reporting our fiscal year end using calendar year. Since 2012 will be a stub year with only nine months its year will end December 31, 2012 and then fiscal year 2013 will be calendar year 2013 ending December 31.

August 2012

Daniel Kunz, Chief Executive Officer

Please visit our Website at: http://www.usgeothermal.com

About U.S. Geothermal Inc.:

U.S. Geothermal Inc. is a leading renewable energy development company that is operating geothermal power projects at Raft River, Idaho and San Emidio, Nevada. The Neal Hot Springs project, located in eastern Oregon, is currently under construction and will be the company's third operating power project. The company holds geothermal energy rights to 69,500 acres comprising six advanced stage geothermal development projects.

The information provided in this news release may contain forward-looking statements within the definition of the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995. These statements are based on U.S. Geothermal Inc.'s current expectations and beliefs and are subject to a number of risks and uncertainties that can cause actual results to differ materially from those described, including but not limited to, the results from financing, production, and development at San Emidio, Neal Hot Springs, Raft River and El Ciebello. Readers are cautioned to review the risk factors identified by the company in its filings with Canadian and US securities agencies. Forward-looking statements are based on management's expectations, beliefs and opinions on the date the statements are made. U.S. Geothermal Inc. assumes no obligation to update forward-looking statements if management's expectations, beliefs, or opinions, or other factors, should change.

The NYSE MKT and the TSX do not accept responsibility for the adequacy of this release.

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