EQUITY RESEARCH John McIlveen, MBA, Research Director jmcilveen@jacobsecurities.com +1 (416) 866-8303 Mark Vernest, H.B.Comm, Associate mvernest@jacobsecurities.

com +1 (416) 866-8346 Khurram Malik, MBA, Analyst kmalik@jacobsecurities.com +1 (416) 866-8314

September 2008

A Geothermal Primer
Mining Heat

Highlights
Geothermal: has the highest power generation capacity factor at 95%. is among the few clean power sources reliable enough to be base-load capacity. is cost competitive with other methods. does not use fuel and therefore has no commodity risk exposure. Governments encourage geothermal through carbon credits, grants and tax incentives. Development and operating costs are very site-specific.

Jacob Securities Inc. (Jacob Securities) does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For analyst certification and other important disclosures, refer to the Disclosure Section.

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Contents

GEOTHERMAL POWER SEPTEMBER 2008

JACOB SECURITIES INC. EQUITY RESEARCH

What is Geothermal Power?............................................................................................................................................... 1 What Are the 3 Stages of Development? ......................................................................................................................... 4 What Does Geothermal Power Cost? ............................................................................................................................... 6 1. Levelised Cost .............................................................................................................................................................. 6 2. Capital Cost .................................................................................................................................................................. 6 3. Operating Cost ............................................................................................................................................................. 7 New Technologies ................................................................................................................................................................ 8 Who Are the Players? .......................................................................................................................................................... 9 Conclusions ......................................................................................................................................................................... 10

What is Geothermal Power?

Geothermal power is created through steam turbines from heat deep underground.

All electricity is made the same; it is just a matter of what fuel is used to rotate the turbine. The turbine can be rotated with wind, water or steam generally. If steam is used, water is boiled into steam using heat from burning fossil fuels or heat from nuclear reactions. Geothermal power is green or renewable power. Geothermal uses naturally occurring heat within the earth at depths of 500 to 4,000 metres (see exhibit 1). In effect, it is mining heat. Relatively speaking, the Earth`s crust is an eggshell that surrounds a hot core. The heat is everywhere but can currently only be extract economically to about 4,000 metres. Gas wells have been drilled to 11,000 metres but this is cost prohibitive for geothermal. However, geothermal drilling is able to utilize the same advancements made in oil & gas drilling, and as a result, geothermal wells are moving deeper than 4,000 metres. Exhibit 1: Geothermal Field

Source: The University of Utah http://www.geothermal.org/GeoEnergy.pdf.

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Geothermal reservoirs are found where tectonic plates meet and the heat source is closer to the surface.

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Geothermal reservoirs are found in areas where tectonic plates meet such as the Pacific Rim because the heat source is closer to the surface in these areas. Naturally occurring heat from the earth has superheated the water (heated above the waters boiling point), but is trapped by nonporous rock (cap rock). Because the water is under pressure, it cannot expand into steam. Once the water reaches the surface, it has the space to expand and then flashes into steam. Heat is extracted by drilling 12 to 18 diameter wells. After passing through the turbine, the steam is condensed to water and re-injected into the reservoir thereby reducing the resource depletion. Wells not generating sufficient steam are used for re-injecting water. Typically, there is one injection well for every 1 or 2 extraction wells. The first geothermal plant was built in 1904 in Larderello, Italy and this site still generates 390 MW today using 13 plants. The installed capacity of geothermal power worldwide is ~9,000 MW. About ~3,000 MW of this is in the United States. The Philippines and Indonesia are major geothermal areas too. Plants. There are three types of geothermal power plants (see exhibit 2).

The type of plant used is largely dependent on resource temperature.

1. Dry Steam Plants, so-called because the extracted heat is in the form of steam without condensed water being present. 2. Flash Steam Plants extract super-heated water, which flashes into steam at the surface. 3. Binary Cycle Plants utilize hot water with lower temperatures (below 200C) to heat secondary fluids. The secondary fluid has a lower boiling point than water, such as butane, which can then be flashed into steam.

Exhibit 2: Types of Geothermal Power Plants Dry Steam Plant Flash Steam Plant Binary Cycle Plant

Source: Boyle, 1998; University of Pennsylvania

Binary systems are more expensive to build and operate but are more efficient and lose very little fluid for reinjection, hence a longer resource life. Binary systems are closed loop systems. Dry Steam or Flash Steam plants require resource temperatures above 200 and lose more than C 35% of the water intended for reinjection. However, typical decline rates (in terms of MWh) are 1% per annum and can be recouped by drilling more wells.
Advancement in EGS could yield large geothermal resources if research is continued.

So far, geothermal power is limited to resources having water or steam. Much research and pilot projects are examining EGS (Enhanced Geothermal Systems), also called Hot Dry Rock. For EGS, water must be shipped in and injected down wells into dry rock of 250 or more. Also C necessary are a base layer of rock and an insulating layer of rock above it and the rock must be fractured using highly pressurized water and sand. A 2007 MIT study, The Future of Geothermal Energy (http://geothermal.inel.gov), concludes that with a modest R&D investment, 100,000 MW of EGS power could be available within 50 years in the United Sates (versus current capacity from all generation methods of 1,100,000 MW). However, EGS may not be for everyone a project in Basel, Switzerland was halted in 2006 after water injected five km down is believed to have caused a series of small earthquakes strong enough to shatter windows.
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As the compelling advantages of geothermal are realized, we anticipate continued interest in this area.

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Advantages. Geothermal power has a number of inherent advantages over other generation methods: Geothermal has the highest net capacity factor (availability) for all renewables at 95% and all forms of electricity compared to 90% for nuclear, 85% for biomass, coal and gas, 50% for hydro and 35% for wind and 25% for solar (see Exhibit 3); Geothermal is one of the two clean power sources reliable enough to be base-load capacity (non-stop); Geothermal is cost competitive with other methods; Governments encourage geothermal through carbon credits, grants, and tax incentives Geothermal does not use fuel and therefore has no commodity price risk exposure Geothermal has the smallest footprint per MW as minimal land is needed for production and none for fuel (see Exhibit 4). When we talk about geothermal resources, we refer to the proven economic reserve (see Exhibit 5 below). The vertical axis is the degree of economic feasibility related to the depth of the resource and the horizontal axis is the degree of geological assurance given by consulting engineers. Beyond the proven reserve are the probable, possible, and undiscovered reserves, which are often revealed as the proven reserve is exploited. Beyond the economic reserve are further reserves at greater depths (below 4,000 metres), which cannot be exploited economically using current technologies. Exhibit 5: Geothermal Reserves

A geothermal reserve is an identified subset of the resource that is proven or probable.

Exhibit 3: Renewable Power Capacity Factors

Average Net Capacity (%)
Considered Baseload

Bionmass - AD Biomass - Combustion Biomass - Gasification Geothermal - Dual Flash Geothermal - Binary Steam Hydro - Small Scale Solar - Concentrating PV Solar - Parabolic Trough Solar - PV Wind Ocean - Wave 0% 20% 40% 60% 80% 100%

Source: Navigant Consulting

Exhibit 4: 30 Year Land Use

Geothermal

Wind***

Solar PV**

Solar Thermal

Coal*

0.0

0.5

1.0

1.5

2.0 Sq. M / MWh

2.5

3.0

3.5

4.0

*Includes mining ** Assumes central station photovotaic, not rooftop PV systems. *** Land actually occupied by turbines and service roads Source: Brophy, paul (1997) Renewable Energy, Vol 10:2/3; Geothermal Energy Association Source: International Geothermal Associatation. http://iga.igg.cnr.t/geo/geoenergy.php Page 3

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1. Confirmation Stage
The 1 stage is to ensure that there is a resource that can most likely be economically feasible.
st

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What Are the 3 Stages of Development?

Geothermal reservoirs are typically discovered by accident through mineral exploration or by visible surface evidence such as hot pools or geysers. Exploratory slim-hole wells are drilled to map the reservoir. The confirmation stage ends with an independent consultants report verifying the existence of the reservoir and the minimum MW it can support. Confirmation Activities Secure land lease rights (license for 1% to 5% of revenue) Conduct geologic surveys to determine the size, location and temperature of the resource Mapping using satellite photos, topographic maps, GPS cost $10,000 Water testing for geothermal elements - $20,000 Soil gas testing for geothermal elements - $10,000 Geophysical mapping methods including gravity, magnetic, magneto telluric, electrical, and seismic - $50,000 to $500,000 Slim holes or temperature gradient well drilling (100 to 500m) - $150,000 to $500,000 per well (3 to 10 wells required)

2. Drilling and Feasibility Study Stage

The 2 stage involves drilling production size wells to estimate total production MW.
nd

At least three production size wells are drilled. These are 12 inches in diameter and 500 to 3,000m deep. Wells cost between US$3m and US$6m on each, depending on depth, site access, and earth conditions (rig and crew $65k-$80k per day for 45-90 days). This stage ends with a feasibility study by independent consultants. The study more practically defines the map, size, and flow rates and adds an economic feasibility assessment. According to the consultants we have talked to, once there is a positive feasibility study, there has never been a case of a geothermal power project not successfully proceeding to power generation. A feasibility study is possible once one-third of the targeted MW is proven by production wells. So, a 30 MW plant may be proven by a single 10 MW well, however, wells generally average 5 MW each although can range from a dry hole to the 23 MW well recently drilled by Polaris Geothermal. Dry wells can be used as reinjection wells.

3. Construction Stage
Construction can begin once a PPA is signed and both debt and equity financing are complete.

A positive feasibility study is the first domino that enables permitting, which enables a long-term (20 years or more) PPA with the local grid operator, which enables debt financing, which enables the equity financing. A geothermal plant will take 18 months to begin power generation after the drilling program is complete. Exhibit 6: The Three Stages 30 MW Example
$120m
Transmission 5% Steamfield 5%

Cumulative Cost

Plant 40%

Permits Feasibility Drilling 45%

Confirmation 5%

12

24

36

Months

Source: Jacob Securities

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Drilling and feasibility costs have risen due to increased steel and cement prices. It typically takes 7 years to generate electricity from initial site identification. Tax investor will utilize: accelerated D&D allowances, PTC, and a % of cash flow to get desired IRR. Intangible drilling costs can be written off in one year PTCs, set to expire in late 2008, add $20/MWh for 10 years.

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Exhibit 6 on the previous page depicts a 30 MW project costing $120 million to be completed in 36 months if capital and permitting are not a constraint. Confirmation, drilling and feasibility comprise about half of the project cost, up from about one-third three years ago, as the cost of drilling has increased as well as cement and steel. Typically, about 7 years is required to commence generation from the point of resource identification. Each phase requires different sources of capital from early phase (friends and family, angels and venture capital), to mid phase private and public equity and project-level joint venture partners, to construction phase bridge and take-out debt or tax-driven financing. Tax-driven financing in the United States requires an investor with U.S. taxes to shield and to acquire the project for 10 years before selling it back to the developer. The tax investor will utilize the tax losses created by accelerated depreciation allowances and depletion allowances, will also utilize the Production Tax Credits (PTC), and finally take a percentage of cash flow to top-up the return to the desired IRR (about 8% but falling). The accelerated depreciation, called MACRS, allow 100% write-off on intangible drilling costs (the soft costs) in year one. Intangible drilling costs are usually 3/4 of the total drilling cost. The remaining hard costs of the project are written off over 5 years on a front-end loaded schedule (about 35% and 25% in years one and two respectively). Depletion allowances are the lesser of 15% of revenue or 50% of earnings before taxes. Production Tax Credits are set to expire in December 2008 (unless renewed) but if a project is online before that date then it will earn about $20/MWh in tax credits for 10 years. The combination of depreciation, depletion, PTCs and cash flow participation can fund 75% of a projects cost. Without the PTCs, a lender will also typically fund 75% of the project cost with a feasibility study in hand, however, the PTCs will improve the project IRR to the point where a marginal looking project becomes attractive. Exhibit 7 shows the timeline, activities and sources of capital for geothermal projects. We have plotted the market cap per MW of the six geothermal companies (although not to scale). Ormat, the mature geothermal is valued at $3.7 million per MW while Sierra, the most junior, is $500,000 per MW. The valuations follow a fairly straight line except for undervalued Polaris at $1 million per MW. Polaris has a world-class site that eventually may generate 500MW but it is in Nicaragua at some point the discount to peers should narrow.

Exhibit 7: Financing Geothermal

Source: Jacob Securities

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GEOTHERMAL POWER SEPTEMBER 2008

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What Does Geothermal Power Cost?

There are three costs we consider; levelised, capital and operating.

1. Levelised Cost
Since geothermal has no fuel and minimal O&M, it is a very competitive source of electricity.

Levelised cost refers to all cash capital and operating costs, unadjusted for inflation, divided by the units of power produced over the useful life of the project (for example gas 20 years, wind 25 years, geothermal 30 years, etc). Levelised cost is the way utilities look at projects. The capital cost for geothermal projects is high because in addition to plant costs there is also exploration and drilling. A geothermal plant now costs the same as a super-critical coal plant. However, geothermal has no fuel cost and hence has lower operating costs (see Exhibit 8). Project costs are site specific due to the differences in local geology and infrastructure.

2. Capital Cost
Capital costs have been rising close to 5% /year since 2001.

Further distance from major transmission lines increases cost.

Although many sources state that capital costs are in the range of $3-$4m/MW, we believe current costs are in the $4 to $4.5m/MW range (see Exhibit 9). This has increased from $3m/MW since 2001 due to rising cement, steel and drilling costs. Once capacity factors are considered, geothermal is the lowest cost per delivered MW among renewable and costs about the same as a super-critical coal-fired plant and less than a gasification coal-fired plant. The cost breakdown was discussed earlier under the three development stages (Page 4). Transmission costs assume the developer constructs its own line. GeothermEx (2004) estimates the cost to be $268,000/mile or $167,000/km. The kV of the line also matters as longer distances require higher voltage to minimize dissipation of electricity. 115 kV and 345 kV lines are estimated to cost $164,000/mile and $388,000/mile, respectively. More watts sent down the line increases capacity of the line which lowers the cost per kWh. GeothermEx considers the economic viability zone of a transmission line to be $13 to $236 per kW .

Exhibit 8: Levelized Cost Ranges

Solar PV Biomass Geothermal Wind Run-of-river hydro Large hydro Coal Natural Gas Conservation Initiatives

Exhibit 9: Installed Cost for Electricity Generation (2004)

Bionmass - AD Biomass - Combustion Biomass - Gasification Geothermal - Dual Flash Geothermal - Binary Steam Hydro - Small Scale Solar - Concentrating PV Solar - Parabolic Trough Solar - PV Wind 0 2,000 4,000 6,000 8,000 10,000

50

100

150

200

250

Generation Cost Range ($/MWh)

Dotted verticle lines: Range of 2006 wholesale electricity prices in Canada Source: B.C. Hydro Challenges & Choices (2006); Jacob Securities estimates.

'000 USD / MW
Source: Navigant Consulting

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3. Operating Cost
O&M costs are mostly fixed, with a low variable component essentially all cash costs above the EBITDA line.

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Operating or O&M cost (operation and maintenance) are largely fixed with a low variable component. Operation costs include all expenses related to the operation of the power plant. This includes labour, lubricants, chemicals for H2S abatement, scaling and corrosion control, vehicle fuel, spare parts, sales and property taxes and royalties, waste disposal, and parasitic load for various pumps (i.e. cooling system) and lighting. Essentially, all cash costs above the EBITDA line. Maintenance includes plant maintenance, field maintenance (wells and gathering system), and may or may not include well replacement. Sometimes well replacement costs are capitalized so when comparing costs, make sure the treatment is consistent. EPRI (2001) estimates operating costs at $7/MWh based on a 50 MW plant and 40 employees. However, as pointed out earlier, new plants coming online have one-half or less this number of employees. Included is royalties (paid to the field owner) which range from 0.5% to 5.5% of the selling price of power, and various taxes (property, sales, but not income). EPRI (2001) estimates annual plant maintenance at 5% of the initial plant cost such that a plant costing $1,400/kW would have annual maintenance of $9/MWh. The GEA estimates annual field maintenance costs at 2% of the original field cost and well replacement at 5% of the initial drilling cost. So, at a combined 7%, field maintenance and well replacement would cost $8/MWh based on average drilling costs of $900/kW.

So, O&M costs total $24/MWh or 2.4 cents per kWh. Other estimates are lower as follows in Exhibit 10: Exhibit 10: Various Estimates of O&M Costs

Source
Sanyal (2004) Owens (2002) EPRI (2001) Lovekin (2000)
* not including well-replacement
Source: Geothermal Energy Association

$/MWh
14 - 20* 18 - 21 16 - 27 20 - 22

Sanyal formularized the O&M costs as O&M = 2e- 0.0025(MW-5) for plants from 5 MW to 150 MW.

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New Technologies
New technologies being developed are driving down the min avg. temperature below the current minimum of 150 C.

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According to Navigant Consulting, geothermal is the most technologically mature renewable and third in terms of market maturity (see Exhibit 11). However, a variety of new technologies are being developed to drive down the minimum temperatures required to generate electricity (see o o Exhibit 12). Currently, binary geothermal plants require 150 C and somewhere between 200 C o and 220 C a flash geothermal plant will be used. Most of the new technologies also have additional applications in utilizing waste heat to make electricity. Among the commercially available are Ormat Technologies REG (recovered energy) system and UTC Powers PureCycle system. Post pilot systems include Exorka Internationals Kalina Cycle system. In-pilot systems include ElectraTherm and Trimodal Group. Exhibit 12: New Low Temperature Technologies

Exhibit 11: Technology/ Market Maturity of Renewables

Source: Navigant Consulting; Jacob Securities.

Source: Company Reports

All low temperature technologies utilize a signature closed loop Rankine Cycle design.

The systems use a Rankine Cycle design, which is a thermodynamic cycle that converts externally supplied heat into work (rotating a turbine), which creates electricity by exciting the electrons contained in the copper coil surrounding the rotating magnetic rod. The system is a closed loop and usually uses water, or other fluids with a boiling point lower than water, as the working fluid. The Rankine Cycle generates about 80% of all electric power throughout the world including solar thermal, biomass, coal and nuclear power plants. Ormat REG systems are borne from geothermal but its applications are industrial waste heat. Gas pipeline compressors, gas processing, LNG re-gasification, cement, and biomass processing all create waste heat, which can be used to create power. The REG system is scalable, made-toorder and installations have ranged from 200kW to 22 MW. UTC Powers PureCycle consists of turbines constructed in a series of 280kW units and are thus scalable. Exorkas Kalina Cycle system uses a mixture of ammonia and water as the working fluid. The working fluid is heated by geothermal a water. Exorkas system is used on the front end just like a standard binary turbine and can be adapted for the back end to capture waste heat, which in the geothermal example cycles heat twice to make electricity before reinjection. ElectraTherm has modified the rankine cycle by adding an expander before the generator that more efficiently utilizes steam pressure. There are also applications in stationary engines, coalfired power plants, oil and gas and industrial waste heat. So far, efforts have focused on units generating less than one MW. Another product, the Gas Pressure Reduction Generator, is not

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GEOTHERMAL POWER SEPTEMBER 2008

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rankine-based and instead captures the energy in the pressure drop of any gas. It is designed for the oil and gas industry and has been tested to 1.5 MW. Trimodals is a closed loop system, which they state is economic at 70 C for 500 kW.
o

Who Are the Players?

There are 7 public geothermal companies.

There are 7 public geothermal companies: Nevada Geothermal NGP-TV, Ormat Technologies ORA-N, Polaris Geothermal GEO-T, Raser Technologies RZ-N, Sierra Geothermal SRA-TV, US Geothermal GTH-T, and Western GeoPower WGP-TV (see Exhibit 13). Ormat is currently generating on 410 MW and has over 272 MW under development. Raser has no generation yet but a considerable pipeline of development prospects. Raser is not a pure-play geothermal, having an advanced electric motor business, and so has a technology play aspect to it. The other five geothermals have considerable development pipelines and two are generating now, Polaris on 10 MW and US Geothermal on 16.6 MW. These are not exploration companies. All have confirmed resources and independent estimates of their proven and probable MW. Exhibit 13: Geothermal Comps: In Order of Time To Generation
15-Aug-08 Price Price Annual high Annual low MW Generating Under development Future estimated $mln Enterprise Value per MW Generating plus under development Including future estimates Market Cap C$mln EV US$mln EBITDA US$mln EV/EBITDA TTM CF from ops Market Cap to CF Source: Company reports; Jacob Securities. $ US$ C$ @ $ $ $ $ ORA 48.18 50.72 $ 57.93 38.14 410 272 unknown 3.7 na 2,184 2,517 113 22 94 23 $ $ $ $ $ GEO 1.20 1.69 0.90 10 82 395 1.0 0.2 $ $ $ $ $ GTH 2.40 4.75 2.00 17 66 97 1.6 0.7 $ $ $ $ $ NGP 1.08 1.60 0.68 0 50 150 2.2 0.6 $ $ $ $ $ WGP 0.27 0.50 0.25 0 35 100 1.3 0.3 $ $ $ $ $ SRA 0.44 0.90 0.29 0 35 347 0.5 0.0 27 16 (2.7) neg (1.7) neg

1.05

85 $ 93 (3.5) neg (5.5) neg

141 $ 132 (5.5) neg (2.4) neg

102 $ 110 (3.5) neg (6.7) neg

55 $ 44 $ (3.2) neg (0.1) neg

There are also many private players. The Western Governors Association published a report entitled, Clean and Diversified Energy Initiative, Geothermal Task Force Report, in January 2006 (http://www.westgov.org/wga/initiatives/cdeac/Geothermal-full.pdf). The report states that there are 140 known undeveloped geothermal sites totaling 13,000 MWs in the Western United States. Further, 5,600 MWs of these sites are regarded as commercially viable now (defined as having a levelized cost under 8 cents per kWh). At $4 million per MW, these sites would cost over $22 billion to develop. The recommendations of the report include encouraging geothermal development through government incentives and fast tracking the regulatory approval process.

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Conclusions
There is demand for clean, renewable energy; geothermal development is one of the best answers to this situation.

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The conclusion can be summed up as: it depends. Geothermal development and operating costs are very site-specific. The main factors favouring lower levelised cost are plant size (a large plant can be 25% of the per MWh cost versus a small plant), resource temperature (again, high temperatures could be 25% of the per MWh cost versus low temperatures), chemistry (the cleaner the better to save on handling and corrosion), the resource depth and permeability (which dictates drilling cost and MW/well). Transmission line distance to the grid versus the MW to be carried is also an important variable. The increased awareness seems to be leading to more government incentive, higher prioritization, and increased investment. To close, we restate why geothermal power is worth promoting by industry and government: Geothermal has the highest net capacity factor (availability) for all renewables at 95% and all forms of electricity compared to 90% for nuclear, 85% for biomass, coal and gas, 50% for hydro and 35% for wind and 25% for solar Geothermal is one of the two clean power sources reliable enough to be base-load capacity (non-stop); Geothermal is cost competitive with other methods, Governments encourage geothermal through carbon credits, grants, and tax incentives, and Geothermal does not use fuel and therefore has no commodity risk exposure.

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Appendix: Important Disclosures
Analyst Certification:

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Each authoring analyst of Jacob Securities Inc. (Jacob Securities) whose name appears on the front page of this investment research hereby certifies that (i) the recommendations and opinions expressed in this investment research accurately reflect the authoring analysts personal, independent and objective views about any and all of the designated investments or relevant issuers discussed herein that are within such authoring analysts coverage universe and (ii) no part of the authoring analysts compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the authoring analyst in the investment research.

Ratings & Risk Rankings: We have a three-tiered rating system, with ratings of Buy, Hold and Sell. Each analyst assigns a rating that is appropriate to the analyst`s view of how that stock will perform (total return basis) over the next 12 months on an absolute basis. At times the anticipated total returns may fall outside of the general ranges stated below due to near-term events, market conditions or stock volatility or, in some cases, company-specific corporate structures that result in consistently high yields. Ratings. Speculative Buy: Anticipate total return appreciation generally in excess of 15% over the next 12 months, however, the company is either pre-revenue, has negative cash flow, or a major unpredictable event may occur within 12 months. Buy: Anticipate total return appreciation generally in excess of 15% over the next 12 months. Hold: Anticipate limited total return (general appreciation less than 15% or decline less than 5%) over the next 12 months. Reduce: Near term price outlook is for a negative return; however the long term outlook is for a positive return. Sell: Near term and long term return is expected to be negative. Risk Rankings. Low: Low financial and operations risk, high predictability of financial results, low stock volatility. Medium: Moderate financial and operations risk, moderate predictability of financial results, moderate stock volatility. High: High financial and or operation risk, low predictability of financial results, high stock volatility. Analyst Trading: Jacob Securities permits analysts to own and trade securities of the companies they cover subject to internal procedures. Analysts may not execute transactions for 30 days before and 5 days after the issuance of a research report without prior written consent of the compliance department. Trades by analysts that are contrary to their recommendations may only be executed for reasons not related to the stock outlook and with approval from the compliance department. The information contained in this investment research has been compiled by Jacob Securities from sources believed to be reliable, but no representation or warranty, express or implied, is made by Jacob Securities its affiliated companies or any other person as to its fairness, accuracy, completeness or correctness. Jacob has not independently verified the facts, assumptions, and estimates contained herein. All estimates, opinions and other information contained in this investment research constitute Jacob Securities judgement as of the date of this investment research, are subject to change without notice and are provided in good faith but without legal responsibility or liability. This investment research is provided for information purposes only and does not constitute an offer or solicitation to buy or sell any designated investments discussed herein in any jurisdiction where such offer or solicitation would be prohibited. As a result, the designated investments discussed in this investment research may not be eligible for sale in some jurisdictions. This investment research, is not, and under no circumstances should be construed as, a solicitation to act as a securities broker or dealer in any jurisdiction by any person or company that is not legally permitted to carry on the business of a securities broker or dealer in that jurisdiction. To the fullest extent permitted by law, none of Jacob Securities, its affiliated companies or any other person accepts any liability whatsoever for any direct or consequential loss arising from or relating to any use of the information contained in this investment research. Jacob Securities Inc. is a member of the Investment Industry Regulatory Organization of Canada (IIROC) and Canadian Investor Protection Fund (CIPF).This research report in intended to be viewed only by Institutional Investors. Please do not forward without the expressed written consent of Jacob Securities. A fund managed by a related party to Jacob Securities, and for which the related party receives certain fees, as well as certain principals of Jacob Securities, are financially incentivized based on the performance of certain issuers in the sectors discussed in the report. This material is not directed to, or intended for distribution to or use by, any person or entity if Jacob Securities is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to such person or entity. This report may not be reproduced, re-distributed or passed to any other person or published in whole or in part for any purpose without the prior consent of Jacob Securities. Additional information is available upon request. Jacob Securities Inc. All rights reserved.

Risk Qualifier:

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