rbs morgan research report

8/12/2019 Rbs Morgan Research Report

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Produced by: RBS Morgans Limited

Equity|Australia|U

tilities

Important disclosures regarding companies that are the subject of this report and an explanation ofrecommendations and volatility can be found at the end of this document.RBS Morgans Limited is Lead Manager to the share purchase plan and will receive fees in this regard.

GeodynamicsGetting back to basicsProgress toward being Australia's largest geothermal energy producer continues.

Of particular note is a new leadership team; the redevelopment of a clear

progress plan and the attainment of substantial government funding. Long-term

value but development journey will continue to be capital demanding and volatile.

Key forecasts

FY09A FY10A FY11F FY12F FY13F

EBITDA (A$m) -20.8 -17.5 -16.0 -16.0 -16.0

Reported net profit (A$m) -15.9 -15.3 -50.9 -52.8 -57.8

Normalised net profit (A$m) -15.3 -14.8 -50.9 -52.8 -57.8

Normalised EPS (c) -5.42 -5.08 -13.8 -11.9 -13.0

Normalised EPS growth (%) 90.30 -6.26 172.6 -14.0 9.20

Dividend per share (c) 0.00 0.00 0.00 0.00 0.00

Dividend yield (%) 0.00 0.00 0.00 0.00 0.00

Price/net oper. CF (x) -10.4 -23.9 -9.62 -11.1 -12.9

ROIC (%) -14.2 -11.2 -26.5 -23.3 -21.2

Use of%&indicates that the line item has changed by at least 5%.1. Pre non-recurring items and post preference dividendsAccounting standard: ifrsSource: Company data, RBS Morgans forecasts

year to Jun, fully diluted

A year of tr ial and tr ibulation

Leadership changes and technical challenges were the main themes for FY10. However, we

believe that change and subsequent lessons can stimulate progress. GDYs fundamental

value proposition remains the fact that, based on our analysis, it is still the largest and hottest

defined Australian geothermal resource play. The Habanero 3 well case cracking issue led to

improved material selection, but delays in ascertaining the problem obviously led to the delay

and revision of its development program. Change is often expensive and creates

disappointment in the short term, but is necessary for long-term success. Newly appointed

CEO Mr Geoff Ward is now expected to lead GDY from 31 January 2010.

The revised program

The immediate focus has been on re-casing and fraccing Jolokia 1 to prove reservoir

properties. The two fracture zones were found to be steeply dipping which requires higher

injection pressure but offers temperatures 8C higher. Stage 2 is now using the Jolokia 1 rig

to explore the Hot Sedimentary Aquifers in Joint Venture with Operator Origin Energy. Stage

3 development then reverts to demonstrating energy extraction by firstly drilling newHabanero wells 4 and 5 and then fraccing the reserve and installing a 1MW generator.

Drilling is expected to commence in 2011 with a 12-month drilling and casing sequence.

Investment view Buy retained, A$1.48 target pr ice

With its quality resources, technical expertise, A$50.1m in cash reserves and strategic

partners (Origin and Tata), we believe that GDY is best placed in the sector to develop a

large-scale project. We set our target price to A$1.48 85% of our reserve-based valuation

to account for development risks. We maintain our Buy rating, recognising that GDY is a

high-risk, capital-intensive investment with potentially significant upside. Upcoming catalysts

relate to further progress on Habanero. Key risks are inability to overcome well design

issues, ongoing drilling issues and further delays in the pilot plant.

29 November 2010

Analysts

Roger LeaningAustralia

+61 7 3334 4554

[email protected]

Nick HarrisAustralia

+61 7 3334 4557

[email protected]

RBS Morgans Limited

(A.B.N. 49 010 669 726) AFSL235410A Participant of ASX Group

www.rbsmorgans.com

Price performance

(1M) (3M) (12M)

Price (A$) 0.61 0.47 0.87

Absolute (%) -23.8 0.0 -46.6

Rel market (%) -22.3 -5.3 -45.3

Rel sector (%) -18.9 3.7 -45.1

0.0

0.4

0.8

1.2

1.6

2.0

2.4

Oct 07 Oct 08 Oct 09

GDY.AX S&P/ASX200

Market capitalisation

A$136.17m (US$132.37m)

Average (12M) dail y tu rno ver

A$0.22m (US$0.20m)

Sector: BBG AP Electricity

Part of: ASX/S&P 300RIC: GDY.AX, GDY AUPriced A$0.47at close 26 Nov 2010.Source: Bloomberg

BuyImportant: The above recommendationhas been made on a 12 month viewand may not suit your investment needsor timeframe. The basis it is preparedon is summarised on the last page ofthis report. PLEASE CONTACT YOUR

ADVISER TO DISCUSS THISGENERAL RECOMMENDATIONBEFORE ACTING ON IT.

HighVolatility

Target price

A$1.48

Price

A$0.47

Short term (0-60 days)

n/a

GDY101129


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Geodynamics | News Highlights | 29 November 2010

2

Summary of GDY business basics:

230,000PJ of inferred resources which management estimates can provide >6,500 MW of

base load over 40 years (assuming 25% recovery rate and 15% conversion efficiency);

Long-term goal of sub-A$100 per MW hour power delivered to the grid; and

Extremely high temperature reserve: 278C at 4,900m, 252C at 4,350m and 130-150C at

2,200m.

The trials and tribulations over the last 18 months:

Proof of concept independently verified with long-term closed loop test between Habanero 1

and 3 (depth of 4,300m);

Habanero 3 well incident investigated. Hydrogen embrittlement of steel casing (a chemical

reaction caused by dissolved gases in the reservoir fluid reacting with the casing material)

caused casing failure. GDY learnt from this experience that the wrong grade of steel was

selected, and is in the process of resolving the problems prior to large-scale rollout;

Secured A$107m in funding (A$10m + A$7m + A$90m) in 2009. The A$90m will be used to

commercialise GDYs Cooper Basin demonstration plant. The balance is for the demonstration

of geothermal potential in Hunter Valley, NSW; Wells drilled at Jolokia (depth of 5,000m) and Savina;

Leadership changes, with Dr Jack Hamilton assuming the temporary role of position of

Managing Director (from Gerry Grove White). From 31 January 2011 Mr Geoff Ward will

become the new Chief Executive Officer of Geodynamics.

Keith Spence also assumed the role of Chairman Elect following the resignation of Martin

Albrecht at the November AGM;

Jolokia 1 cement plug re-drilled GDY rnn seven-inch casing in the well and frac stimulated

it in late 2010;

Well bore imaging completed in September 2010 positively confirmed fractures and

temperatures (about 278

C at 4,900km depth) in Jolokia 1;

Fraccing of Jololoa 1 in November indicated different characteristics to Habanero. The two

zones fraced at 4,400m and 4,700m depths were found to have fractures which are initially

steeply dipping and which therefore require higher pressure to inject. However the nature of

these fractures also means that the temperatures in Jolokia at 4,900m are around 278C

which is 8C higher than at the same depth in Habanero, so can logically be expected to

produce higher yields.

GDYs next priority is to utilise Rig 100 for a Hot Sedimentary Aquifer Shallow well exploration

program at the Innamincka Shallows. This Joint Venture exploration program with be

undertaken with Origin Energy as the Operator.

Habanero drilling two more wells (Habanero 4 and 5) to commission a 1MW pilot plant.

Habanero 4 drilling is planned is planned for early 2011 with a 1 MWe looped continuing toHabanero 5 expected to be commissioned in early 2012. GDY will then make the final

investment decision (FID) on a 25MW commercial demonstration plant;

In November 2010 GDY announced plans for a Share Purchase Plan and Options in order to

raise capital to provide working capital to continue the work program that leads GDY to the 25

MWe commercial demonstration plant, including the commissioning of a 1 MWe pilot plant to

deliver the first power using EGS technology in Australia.

The GDY Board is also considering placing up to 60m shares and 60m attaching options to

professional, sophisticated and institutional investors.

Early 2015 planning 25MW commercial feasibility program (CFP) in the Cooper Basin

(commercial demonstration).


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3

Milestones and priorities

Table 1: Proposed development program

Timeline Project Commentary

September 2010 Jolokia 1 Well bore imaging in Jolokia 1 positively confirmed fractures and 278C at 4,900m depth.

Late-CY10 Jolokia 1 Re-casing Jolokia 1 with seven-inch TN95 casing. Lesson learnt from Haberno 3 is that 9 5/8casing and materials are not suitable.

Late-CY10 Jolokia 1 Frac and stimulate Jolokia 1 completed with fraccing demonstrating steeply dipping fractures

but higher temperatures.Commencing late 2010 Hutton shallow wells Review options for shallow drilling within the Hutton area (sedimentary aquifers).

Drilling times and risk are much lower given depths are about 2,500m. This is still at thespeculative stage, but has the potential to result in commercial grade production in a faster timeframe and using existing (and proven) technologies for commercialisation.

GDY is now redeploying Rig 100 (from Jolokia 1) for a Hot Sedimentary Aquifer Shallow wellexploration program at the Innamincka Shallows. This Joint Venture exploration program with beundertaken with Origin Energy as the Operator. The project is expected to diversify GDYsgeothermal resource base and if successful has the potential to allow GDY to begin producingelectricity early than originally expected.

Commencing early-CY11 Habareno 4 Drill and frac Habanero 4. Case with seven-inch TN95 - lesson learnt from Habanero 3.

Should be partially funded by an insurance claim on Habanero 3 and from the Renewable EnergyDemonstration Program (REDP) grant.

Commencing late-CY11 Habareno 5 Drill and frac Habanero 5. Case with seven-inch TN95 lesson learnt from Habanero 3.

Should be partially funded by an insurance claim on Habanero 3 and from the REDP grant.

Early-CY12 Habareno Test flow rates between Habanero 4 and 5.

Early-CY12 Habareno Commission 1MW pilot plant connecting Habanero 4 and 5. Pilot plan will utilise the existing1MW plant that was originally intended for use on Jolokia.

CY12 Jolokia Drilling of Jolokia 2 and demonstrate commercial flows at Jolokia 1.

1QCY13 Habareno FID on 25MW proof of concept plant.

Source: RBS Morgans estimates

Recent Geodynamics business highlights

In November, GDY was awarded a Federal Government A$90m REDP grant to develop the

Cooper Basin Commercial Demonstration Plant. Funding will be staged over the life of the 25

MW geothermal power plant project (until late-2015).

In mid-December, GDY was awarded A$7m in funding under the Federal Governments

Round Two Geothermal Drilling Program (for the development of GDYs Hunter Valley

program). The company was also awarded A$10m in funding in late 2009 from the NSW

Climate Change Funds Renewable Energy Development Program.

Awarded a new operating contract for the Joint Ventures 100% owned drilling rig Weatherford

Drilling Internationals Australian subsidiary in mid-December 2009. This is initially a two-year

contract with the option to extend if agreed by both parties.

The new Research and Development legislation has been re-tabled in parliament. If this

passes as expected companies such as GDY with a revenue less than A$20m are entitled to

receive a 45% cash back rebate on R&D spend. The bulk of GDYs expenditure is still

R&D. The legislation is expected to be retrospective and to come in to effective from 1 July

2010 so GDY should be able to make a claim following the release of its FY11 results, lodge

its tax return by October and receive a refund by the end of CY11.

Balance sheet and capex

As of 30 September 2010, GDY had A$50.1m in cash reserves;.

GDYs FY10 cash burn was about A$50m, and we expect this to increase towards A$75m as

its drilling program recommences.

We expect GDY to receive A$45m in funding in FY11 (detailed below) which, when combined

with A$50.1m in cash reserves and our cash burn estimate of A$75m, should allow it to fund

one more year of exploration.


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4

Funding grants and capital raising

1. A$90m REDP grant to develop the Cooper Basin Commercial Demonstration Plant.

Funding is tiered and will begin when drilling of Habanero 4 commences, with final payment

expected once a 25MW geothermal power plant is commissioned in the Cooper Basin in late

CY15.

We expect GDY to receive A$22.5m per year over four years.

2. A$7m in round-two funding from the Geothermal Drilling Program.

Funding (1:1) has been granted for the development of GDYs Hunter Valley geothermal

project.

Drilling of a 2km deep well in the Bulga tenement was scheduled to commence in CY10.

We expect these funds to be received in FY11.

3. A$10m in funding from the NSW Climate Change Funds REDP.

To develop the Hunter Valley geothermal project as detailed above. We expect these funds to

be received in FY11.

4. Capital raising.

As of 30 September 2010, GDY had A$50.1m in cash.

As announced to the market, GDY will pursue a share purchase plan (SPP) to fund ongoing

work. We forecast (assumed) A$75m in capital raising at 50cps towards end-CY10.

Details of the announced capital raising

GDY announced a capital raising in November 2010. GDY has launched a Share Purchase

Plan (SPP) allowing existing shareholders to purchase up to A$15,000 worth of shares based

on a 15 November 2010 record date.

The SPP shares are priced at the lower of A$0.50 per share or a 10% discount to the volume

weighted average price of all the Companys shares sold on the ASX during the five trading

days between 13 December and 17 December 2010 (inclusive).

In addition GDY has also launched options excisable at A$0.55 and expiring 31 March 2012.

GDY shareholders will receive one option for every share they are issued under the SPP. The

option record date is 17 December 2010.

There are currently 293m GDY shares on issue. The GDY Board estimates that if 100% of the

maximum amount of the SPP is subscriber for this will add 88m new shares and 88m SPP

related options. If there is a 30% SPP take-up this would equate to 26.4m new shares and

26.4m new options, and if there is a 50% SPP take-up this would equate to 44m new shares

and 44m new options.


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5

Table 2 : Project summary

Project Details RBS Morgans cost estimates and commentary

Exploration Drilling of Habanero 4 and 5 We estimate drilling and case costs of A$20-30m per well.

We expect this to be funded via existing cash reserves, capitalraising as already flagged to the market and the possibility of aninsurance payout related to the Habenero 3 casing failure. Our

forecasts do not assume an insurance payout.Demonstration 1MW Pilot plant We expect GDY to reuse the 1MW plant purchased for Habanero 3.

Contractor and ancillary costs will be the majority of the outlay. Weestimate about A$10m in costs.

Pilot 25MW plant run offHabanero 4 & 5 wells

This is likely to be funded via the A$90m Renewable EnergyDemonstration Program.

Funding will commence once drilling of Habanero 4 commences.We expect GDYs cost to commercialise at about A$125m.

Source: Company data, RBS Morgans estimates

Valuation Methodology

Table 3 : GDY valuation

GDY power station 500MW

PJ required/year 38.5PJ

Power station lifespan 20 years

Total gas equivalent reserves required 770PJ

Value of 1PJ gas equivalent un-contracted (A$) 1.0m

Total value for GDY reserves required (A$) 770m

Shares on issue (m) 443.4

Per share valuation (A$) 1.74

Discount applied to reserve-based valuation to account for

development risks15%

Price target (A$) 1.48

Source: Company data, RBS Morgans forecasts

We have assumed no value or cost for the Hutton shallow well and other projects, nor for a

geothermal resource over and above a 500MW power plant.


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6

GDY financial summary

Year to 30 Jun (A$m) AIFRS AIFRS AIFRS AIFRS AIFRS Closing price (A$) 0.47 1.48

Income statement 2009A 2010A 2011F 2012F 2013F Valuation metrics

Divisional sales 0.0 0.0 0.0 0.0 0.0 Preferred methodology Val'n (A$) 1.74$

Total revenue 0.0 0.0 0.0 0.0 0.0 DCF valuation inputs

EBITDA -20.8 -17.5 -16.0 -16.0 -16.0

Associate income 0.0 0.0 0.0 0.0 0.0 GDY Power station 500MW

Depreciation -1.0 -1.3 -36.6 -39.3 -41.8 PJ required / year 38.5PJ

EBITA -21.8 -18.9 -52.6 -55.3 -57.8 Life of Power Station 20 years

Amortisation/impairment 0.0 0.0 0.0 0.0 0.0 Total Gas equivalent reserves required 770

EBIT -21.8 -18.9 -52.6 -55.3 -57.8 Value of 1PJ gas equivalent uncontracted A$1m

EBIT(incl associate profit) -21.8 -18.9 -52.6 -55.3 -57.8 Total value for GDY reserves required A$ 770,000,000

Net interest expense 6.5 4.1 1.8 2.5 0.0 Shares on issue (m) 443.4

Pre-tax profit -15.3 -14.8 -50.9 -52.8 -57.8

Income tax expense 0.0 0.0 0.0 0.0 0.0 Per Share Valuation 1.74$

After-tax profit -15.3 -14.8 -50.9 -52.8 -57.8 Premium / (discount) applied to price target -15%

Minority interests 0.0 0.0 0.0 0.0 0.0 Price Target 1.48$

NPAT -15.3 -14.8 -50.9 -52.8 -57.8

Significant items -0.6 -0.5 0.0 0.0 0.0 Multiples 2010A 2011F 2012F 2013F

NPAT post abnormals -15.9 -15.3 -50.9 -52.8 -57.8 Enterprise value (A$m) 72.2 89.9 183.4 274.4

EV/Sales (x)

Cash flow statement 2009A 2010A 2011F 2012F 2013F EV/EBITDA (x) -4.1 -5.6 -11.5 -17.2

EBITDA -20.8 -17.5 -16.0 -16.0 -16.0 EV/EBIT (x) -3.8 -1.7 -3.3 -4.7

Change in working capital 14.7 8.6 0.0 0.0 0.0 PE (pre-goodwill) (x) -9.6 -3.5 -4.1 -3.8

Net interest (pd)/rec -6.5 3.3 -1.8 -2.5 0.0 PEG (pre-goodwill) (x)

Taxes paid 0.0 0.0 0.0 0.0 0.0

Other oper cash items 0.0 0.0 0.0 0.0 0.0 At target price 2010A 2011F 2012F 2013F

Cash flow from ops (1) -12.7 -5.6 -17.8 -18.5 -16.0 EV/EBITDA (x) -20.6 -23.7 -29.5 -35.2

Capex (2) -45.6 -12.3 -75.0 -75.0 -75.0 PE (pre-goodwill) (x) -29.1 -10.7 -12.4 -11.4

Disposals/(acquisitions) 0.0 0.0 0.0 0.0 0.0Other investing cash flow 28.9 -25.8 0.0 0.0 0.0 Per share data 2010A 2011F 2012F 2013F

Cash flow from invest (3) -16.6 -38.1 -75.0 -75.0 -75.0 No. shares 290.6 367.3 443.4 444.5

Incr/(decr) in equity 44.3 0.1 75.0 0.0 0.0 EPS (cps) -5.3 -13.8 -11.9 -13.0

Incr/(decr) in debt 0.0 0.0 0.0 50.0 100.0 EPS (normalised) (c) -5.1 -13.8 -11.9 -13.0

Ordinary dividend paid 0.0 0.0 0.0 0.0 0.0 Dividend per share (c) 0.0 0.0 0.0 0.0

Preferred dividends (4) 0.0 0.0 0.0 0.0 0.0 Dividend payout ratio (%) 0.0 0.0 0.0 0.0

Other financing cash flow 0.0 0.0 0.0 0.0 0.0 Dividend yield (%) 0.0 0.0 0.0 0.0

Cash flow from fin (5) 44.3 0.1 75.0 50.0 100.0

Forex and disc ops (6) 0.0 0.0 0.0 0.0 0.0 Growth ratios 2010A 2011F 2012F 2013F

Inc/(decr) cash (1+3+5+6) 15.1 -43.7 -17.8 -43.5 9.0 Sales growth n.m n.m n.m n.m

Equity FCF (1+2+4) -58.2 -18.0 -92.8 -93.5 -91.0 Operating cost growth -15.9% -8.8% 0.0% 0.0%

EBITDA growth -15.9% n/a 0.0% 0.0%

Balance sheet 2009A 2010A 2011F 2012F 2013F EBITA growth -13.4% 178.6% 5.1% 4.5%

Cash & deposits 115.0 71.3 53.6 10.1 19.1 EBIT growth -13.4% 178.6% 5.1% 4.5%

Trade debtors 22.7 13.3 13.3 13.3 13.3 NPAT growth -3.5% 244.4% 3.8% 9.5%

Inventory 1.5 0.7 0.7 0.7 0.7 Pre-goodwill NPAT growth -3.5% 244.4% 3.8% 9.5%

Investments 2.9 0.0 0.0 0.0 0.0 Pre-goodwill EPS growth -6.3% 172.6% -14.0% 9.2%

Goodwill 0.0 0.0 0.0 0.0 0.0 Normalised EPS growth -6.3% 172.6% -14.0% 9.2%

Other intangible assets 0.0 0.0 0.0 0.0 0.0

Fixed assets 69.9 79.5 117.9 153.6 186.8 Operating performance 2010A 2011F 2012F 2013F

Other assets 90.3 122.4 122.4 122.4 122.4 Asset turnover (%) n.m n.m n.m n.m

Total assets 302.4 287.1 307.8 300.0 342.2 EBITDA margin (%) n.m n.m n.m n.m

Short-term borrowings 0.0 0.0 0.0 0.0 0.0 EBIT margin (%) n.m n.m n.m n.m

Trade payables 11.3 7.3 7.3 7.3 7.3 Net profit margin (%) n.m n.m n.m n.m

Long-term borrowings 0.0 0.0 0.0 50.0 150.0 Return on net assets (%) -7.0 -18.1 -23.8 -33.0

Provisions 0.0 0.0 0.0 0.0 0.0 Net debt (A$m) -71.3 -53.6 39.9 130.9

Other liabilities 8.3 10.0 10.0 10.0 9.9 Net debt/equity (%) -26.4 -18.4 17.2 74.8

Total liabilities 19.6 17.3 17.3 67.3 167.3 Net interest/EBIT cover (x) n.m n.m n.m n.m

Share capital 319.7 319.9 394.9 394.9 394.9 ROIC (%) -11.2 -26.5 -23.3 -21.2

Other reserves 2.0 3.6 3.6 3.6 3.6

Retained earnings -38.9 -53.7 -108.0 -165.8 -223.6 Internal liquidity 2010A 2011F 2012F 2013F

Other equity 0.0 0.0 0.0 0.0 0.0 Current ratio (x) 5.8 4.6 1.6 2.2

Total equity 282.8 269.9 290.5 232.7 174.9 Receivables turnover (x) 0.0 0.0 0.0 0.0

Minority interest Payables turnover (x) 1.9 2.2 2.2 2.2

Total shareholders' equity 282.8 269.9 290.5 232.7 174.9

Total liabilities & SE 302.4 287.1 307.8 300.0 342.2

Price target (A$)

Reserve Based

Source: Company data, RBS Morgans forecasts


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Geodynamics | Disclosures Appendix | 29 November 2010

RESEARCH TEAMROGER LEANING - Executive Director - ResearchCHRIS BROWN - Senior AnalystNIK BURNS - Senior AnalystALEX CLARKE - AnalystFIONA BUCHANAN - Director - ResearchNICK HARRIS - Senior AnalystMICHAEL KNOX - Executive Director - Economic StrategyJAMES LAWRENCE - AnalystJOSEPHINE LITTLE - Associate Director - ResearchBELINDA MOORE - Director - Research

SCOTT MURDOCH - AnalystSCOTT POWER - Director - ResearchTOM SARTOR - Associate Director - ResearchTAMARA STRETCH - Associate Director - ResearchTANYA SOLOMON - Associate Director - ResearchREBECCA SULLIVAN - Research/Special ProjectsVIOLETA TODOROVA - Technical AnalystMARCEL VON PFYFFER - Director StrategyJAMES WILSON - Senior Analyst

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The Directors of RBS Morgans advise that they and persons associated with them may have an i nterest in the above securities and that they may earn brokerage, commissions, fees and other benefitsand advantages, whether pecuniary or not and whether direct or indirect, in connection with the making of a recommendation or a dealing by a client in these securities, and which may reasonably beexpected to be capable of having an influence in the making of any recommendation, and that some or all of our Authorised Representatives may be remunerated wholly or partly by way of commission.

RECOMMENDATION STRUCTURE

Absolute performance, long-term (fundamental) recommendation: The recommendation is based on implied upside/downside for the stock from the target price. A Buy/Sell implies upside/downside of10% or more and a Hold less than 10%. The target price is the level the stock should currently trade at if the market accepted the analysts view of the stock, provided the necessary catalysts are in placeto effect the change in perception. If it is felt that the catalysts are not fully in place t o effect a re-rating of the stock to its warranted value the target price will differ from f air value. Given the volatility ofshare prices and our pre-disposition not to change recommendations frequently, these performance parameters should be interpreted flexibly. Performance in this context only reflects capital appreciationand the horizon is 12 months.

For listed property trusts (LPTs) the recommendation is based upon the target price plus t he dividend yield, ie total return. A Buy implies a total return of 1 0% or more; a Hold 5-10%; and a Sell less than5%.

Absolute performance, short-term (trading) recommendation: The Trading Buy/Sell recommendation implies upside/downside of 3% or more. The trading recommendation time horizon is 0-60 days.

Each stock has been assigned a Volatility Rating to assist i n assessing the risk of the security. The rating measures the volatility of t he security's daily closing price data over the previous year relative toother stocks included in either the S&P/ASX200 Index (large caps) or the Small Ordinaries Index (small caps) of which it is a member. This rating is a quantitative (objective) measure provided as anadditional resource and is independent of the qualitative research process undertaken by our research analysts.

A rating of Low indicates very little movement in price over the previous year (Coefficient of Variation < 4 for small caps or < 5 for large caps). A Moderate rating implies average price movement over theprevious year (Coefficient of Variation of 9 - 21 for small caps or 7.25 - 15 for l arge caps). A High rating implies significant price movement over the past year (Coefficient of Variation greater than 25 forsmall caps or 35 for large caps).

REGULATORY DISCLOSURES

RBS Morgans Limited has been engaged by Geodynamics as Lead Manager to the Share Purchase Plan and will receive fees in this regard. From this fee, RBS Morgans will pay Licensed FinancialAdvisors a stamping fee of 1.5% on the value of successful applications under the SPP as claimed by that organization.

PRIVACY

Personal information held by RBS Morgans Limited may have been used to enable you to receive this publication. If you do not wish your personal information to be used for this purpose in the futureplease advise us, including your account details to your local RBS Morgans Limited office or t o Reply Paid 202, GPO Box 202 Brisbane Qld 4001.

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