QUARTERLY REPORT PERIOD ENDING 31 December 2011 power earth. from the
Review of the Quarter HIGHLIGHTS The Company s activities for the period were concentrated on preparations for spudding of Habanero 4 during first quarter 2012. FOLLOWING IS A SUMMARY OF HIGHLIGHTS FROM THE QUARTER: Target spud for Habanero 4 agreed and set for first quarter 2012. Post the quarter, drilling contractor, Weatherford Drilling International and other material and service contractors were mobilised to the Habanero site in preparation for spudding. Logging was conducted to further assess the suitability of Habanero 1 as an injection well. Preliminary findings are sufficiently favourable to progress evaluation with initial results indicating that full work-over may not be required. The evaluation is ongoing. Successful conclusion of key capital management initiatives including: Settlement of the Habanero 3 insurance claim. By the end of the quarter the Joint Venture had received 100% of Parts B and C of the claim, less loss loading, totalling $10.8 million (net) to cover redrill and environmental expenses. This amount is in addition to the $4.0 million (net) received in settlement of Part A of the claim announced in April 2011. Agreement reached on a revised drawdown profile for the $90 million Renewable Energy Demonstration Program with the Commonwealth Department of Resources, Energy and Tourism (DRET), enabling a greater proportion of the funds received in the early stages of the project. Strong interest and demand from Geodynamics investors including cornerstone support from Sunsuper and Sentient resulted in a successful capital raising program during and post the quarter under review. Together, the Share Purchase Plan and institutional placement achieved the target maximum combined amount of $10 million. The funds raised will be used to progress development of the Cooper Basin Geothermal Project, commencing with the drilling of Habanero 4. Clean Energy Future legislation was passed establishing a price on carbon and promoting investment in renewable and clean energy technologies including geothermal. The Company s cash position at the end of the quarter stood at $24.9 million. 2 GEODYNAMICS LIMITED December 2011 Quarterly Report Cover: Preparations underway at Habanero 4 location This page: Green Bird Flower - Crotalaria cunninghamii
Letter to Shareholders Dear Shareholder As I write to you, preparation for spudding of Habanero 4 is progressing well. Rig 100 has been fully assembled on the well site and is ready to drill, and our drilling contractor, Weatherford Drilling International has been mobilised to Habanero to commence crew training. We continue to work with our Joint Venture partner, Origin Energy, and the South Australian Department for Manufacturing, Innovation, Trade, Resources and Energy (DMITRE) to finalise all approvals. The successful execution of the Habanero 4 well is the first important activity in a material work program designed to upgrade our resource at Habanero to a measured geothermal reserve capable of supporting the first full scale commercial geothermal project in Australia. Habanero 4 is set to reach a maximum depth of 4,170 m and expected to be completed approximately four months from the start of drilling. Our goal is to deliver a safe well on schedule and on budget that meets its operational objectives. Considerable time has been spent preparing for this drilling campaign, stress testing our plans and assessing all possible risks and contingencies. I look forward to updating shareholders as progress is made in the field. As we are poised to commence major field activity, market conditions over the past year have only served to reinforce our intent to carefully oversee the management of capital and expenditure. We continue to implement measures that will reduce costs and maximise the use of internal funding sources. We also continue to proceed with the marketing and sale of our drill rig assets to release funds for resource appraisal and contain future costs. This allows the Company to focus capability around its core business of geothermal resource development and utilise a rig hire arrangement as is standard industry practice. During the quarter, we successfully finalised settlement of the Habanero 3 insurance claim and we were equally pleased to announce that, in consultation with the Commonwealth Department of Resources, Energy and Tourism, we have optimised arrangements for drawing down funds under the $90 million Renewable Energy Demonstration Program (REDP) grant. The accelerated access to funding, within the program guidelines, is significant for Geodynamics, as the REDP grant provides material support to demonstrate the commercial capability of the Cooper Basin Enhanced Geothermal Systems (EGS) geothermal resource. However at a time where there is continued risk in the financial markets, the Board and I thought that it was prudent to raise a measured amount of capital to complement existing resources to provide sufficient coverage to execute our complex field program while not being overly dilutive to our shareholder base. Having sought approval from shareholders at the 2011 Annual General Meeting, we undertook and successfully completed a modest capital raising program in January through a Share Purchase Plan to Geodynamics existing shareholders and placement to institutional investors. Notwithstanding the challenging equity market conditions at the time, Geodynamics received strong investor support. We had a target combined raising of $8 million but achieved the maximum combined total of $10 million approved by the Board under the capital raising program. Mr Geoff Ward, Managing Director and Chief Executive Officer I wish to sincerely thank those shareholders who participated in this capital raising. We are extremely grateful for the long term and loyal support of all our shareholders and your continued interest is critical to the further development of our geothermal project. 2012 is a year of very focused activity with a number of clear milestones ahead through our gated appraisal program and we look forward to it being a successful year of field operations. Regards Geoff Ward Managing Director and Chief Executive Officer December 2011 Quarterly Report 3 GEODYNAMICS LIMITED
Operations Update Innamincka Deeps Joint Venture Update PLANNING FOR HABANERO 4 During the December quarter, activities were focused primarily on preparations and planning for the drilling of Habanero 4. Post the reporting period, Geodynamics announced that the Innamincka Deeps Joint Venture is targeting spudding for first quarter 2012. At the time of writing all required regulatory approvals and clearances are in progress and are expected to be complete in time for spudding. The drilling contractor Weatherford Drilling International has been notified to mobilise personal to site. The Joint Venture has agreed the well completion design and well implementation plan for the proposed Habanero 4 well. The well will be drilled using Rig 100, with the program expected to take approximately four months from the start of drilling. The Joint Venture plans to drill the Habanero 4 well to a target depth of approximately 4,170 metres to access the existing fracture zone. With successful execution of Habanero 4, the well will be tested to secure data necessary to continue reservoir development studies and validate reservoir models. On the basis of the well information obtained, the fracture zone may then be further stimulated, as was done at Habanero 3, with the purpose of extending the stimulated fracture network and to improve well connection to the reservoir. In line with these program objectives, planning for the stimulation and testing of Habanero 4 continued during the quarter. Locations for the recently acquired additional seismic stations have been selected, surveyed for environmental and cultural heritage value and subsequently approved for use. Options for the provision of water for the stimulation have been considered and a water management plan has been developed. The stimulation water will be sourced from existing water wells in the shallow aquifer at Jolokia and stored in a lined dam at Habanero in advance of the stimulation. It is proposed that this same lined dam be later used to store reservoir brine produced from Habanero 4 during open flow testing. The reservoir testing program has been refined after model studies of a range of potential test outcomes. The testing program includes tests before and after stimulation to provide further data about the impact of stimulation on the fracture system within the granite. Wedge-tailed Eagle observing site preparations A review of the geomechanical model for the Innamincka granite has commenced with expert consultants currently reviewing all the available data. This effort is expected to enhance understanding of the effect of stimulation upon existing natural fractures such as those encountered at Habanero. 4 GEODYNAMICS LIMITED December 2011 Quarterly Report
Operations Update The Habanero appraisal program adopts a gated approach requiring each activity to be assessed before proceeding to the next step. HABANERO PROJECT STAGE 1 OBJECTIVES: The key objectives of the first stage of work include: Drill Habanero 4 to a target depth of 4,170m to access and locally stimulate the known fracture zone Secure valid well test data to allow enhanced reservoir modelling and understanding Extend the known stimulated fracture zone Establish closed loop circulation between Habanero 4 and Habanero 1 injection well through the existing fracture zone for operation of an Enhanced Geothermal Systems (EGS) doublet system Commission the 1 MWe Habanero Pilot Plant Secure valid long term test data from the closed loop system to allow enhanced reservoir modelling and understanding Secure valid fluid samples to allow enhanced understanding of the chemistry composition and fluid properties over time HABANERO 1 EVALUATION CONTINUES Geodynamics has continued to assess the suitability of the Habanero 1 well for use in the current program as the injection well for pairing with Habanero 4 in closed loop circulation testing and to commission the 1 MWe Habanero Pilot Plant. Logging of the well was conducted during the quarter to assist in evaluating the scope and style of invention required to remediate the well. The logging run provided a sufficiently favourable result to move to the next phase of investigation. Geodynamics will continue to move this option forward with further logging and pressure testing planned in the current quarter. December 2011 Quarterly Report 5 GEODYNAMICS LIMITED
Exploration Projects RENEWAL OF GEOTHERMAL EXPLORATION LICENCE 211 Using gravity data acquired in April 2011, Geodynamics undertook an evaluation confirming the likely location of underlying granites within its exploration licence area GEL 211. Based on the work undertaken, Geodynamics has elected to relinquish one third of exploration licence GEL 211 in accordance with the South Australian regulations. An application for renewal of the remaining two thirds of the tenement area was submitted and has since been granted, expiring 13 November 2016. HUNTER VALLEY SEISMIC RISK ASSESSMENT Geodynamics engaged technical experts Coffey Geotechnics and Environmental Systems and Services (ES&S) to undertake a seismic risk assessment for our Hunter Valley Geothermal Project. A final report was received in November 2011 and will be used as part of any submission to carry out EGS exploration in our tenement near Bulga, New South Wales. The analysis found that the background seismicity is low and that the triggered seismicity risk for geothermal stimulation is assessed as being lower risk than the risk associated with other activities such as those associated with mining activities. It has been assessed that the relevant criteria relating to acceptable levels of peak ground velocity, which is a measure of ground vibration, are expected to be met as per the Australian and New Zealand Environmental Council document Technical Basis for Guidelines to Minimise Annoyance due to Blasting Overpressure and Ground Vibration. The positive seismic risk assessment enables Geodynamics to continue with its planning activities for the Hunter Valley geothermal project but no field activities are planned for the immediate future. Hunter Valley map with locations of Bulga and Muswellbrook tenements As reported, Geodynamics priority project and focus for the next twelve months will be on the further targeted appraisal at Habanero. The Company s early exploration projects will continue to be progressed at a level that maintains good standing of the permit areas but at lower expenditure and effort in the immediate term. 6 GEODYNAMICS LIMITED December 2011 Quarterly Report
Public and Investor Relations INSTITUTIONAL PLACEMENT AND SPP RAISE MAXIMUM COMBINED AMOUNT OF $10 MILLION In December, Geodynamics embarked on a capital raising program through an institutional placement and Share Purchase Plan (SPP). Post the quarter, the Company was pleased to announce that together the placement and SPP amount exceeded the target amount of $8 million and was also above the maximum capital raising amount of $10 million approved by the Board. To accommodate the majority of shareholders while seeking to minimise dilution, an additional $2 million has been accepted to close the capital raising at the maximum approved amount of $10 million. The placement was completed 29 December and was strongly supported by Geodynamics cornerstone investors, Sunsuper and Sentient, resulting in the issue of 25.5 million shares at $0.15 per share raising $3.8 million. The SPP closed on 20th January 2012 oversubscribed raising in excess of the maximum approved amount of $6.2 million with 42.8 million shares issued at a price of 14.5 cents. The Board and Management of Geodynamics are encouraged by the positive uptake of the SPP and placement and would like to thank shareholders for their support and participation in this capital raising initiative. 2011 ANNUAL GENERAL MEETING REVIEW The 2011 Annual General Meeting (AGM) was held at the Marriot Hotel in Brisbane on 24 November. The meeting was attended by over 300 shareholders, in person and online via a live interactive webcast. An archived copy of the Managing Director s presentation from the AGM is available at www.brr.com.au/ event/87754. AGM RESOLUTIONS Results of voting at the AGM were lodged on 25 November 2011 and are available for viewing under the ASX Announcements section of the Company website at www.geodynamics.com.au. All resolutions were passed including a resolution to adopt a new Company Constitution. The new constitution incorporates the changes to the Corporations Act 2001 and ASX Listing rules that have occurred since the original Constitution was adopted in 2002. A copy of the new constitution can be downloaded from the Corporate Governance Section of the Company Website SEEKING YOUR FEEDBACK The Board of Directors would be very pleased to receive any feedback from shareholders that will assist in improving future AGM s. To provide your comments, please email info@geodynamics.com.au or phone our Investor Relations team on +61 7 3721 7500. The Managing Directors presentation from the 2011 AGM is available for viewing online through BRR at www.brr.com.au/event/87754 December 2011 Quarterly Report 7 GEODYNAMICS LIMITED
Corporate Directory BOARD OF DIRECTORS Mr Keith Spence (Non-executive Chairman) Mr Geoff Ward (Managing Director and CEO) Dr Jack Hamilton (Non-executive Director) Mr Michel Marier (Non-executive Director) Mr Bob Davies (Non-executive Director) Mr Andrew Stock (Non-executive Director) COMPANY SECRETARY Mr Paul Frederiks FCPA FCIS FAICD PRINCIPAL and REGISTERED OFFICE Level 3, 19 Lang Parade, MILTON QLD 4064 Telephone: +61 7 3721 7500 Facsimile: +61 7 3721 7599 POSTAL ADDRESS PO Box 2046, MILTON QLD 4064 EMAIL info@geodynamics.com.au ABN 55 095 006 090 BANKER Westpac Banking Corporation AUDITOR Ernst & Young SOLICITOR Thomsons Lawyers SHARE REGISTRY Computershare Investor Services Pty Limited GPO Box 523, BRISBANE QLD 4001 Telephone Australia: 1300 850 505 Telephone International: +61 3 9415 4000 Facsimile: +61 3 9473 2500 SECURITIES EXCHANGE LISTING Geodynamics Limited shares are listed on the Australian Securities Exchange. The home branch is Brisbane, ticker: GDY INTERNET www.geodynamics.com.au 8 GEODYNAMICS LIMITED December 2011 Quarterly Report