MAGMA ENERGY CORP ANNOUNCES 2011 SECOND QUARTER RESULTS

(All amounts in US dollars unless otherwise stated and all MW according to the Geothermal Reporting Code.)

VANCOUVER, Feb. 14 /PRNewswire-FirstCall/ - Magma Energy Corp. (TSX: MXY) today reported its financial and operating results for the second quarter of 2011 ending December  31, 2010.  Highlights of the quarter were:

• Completion of Magma's acquisition of a 98.53% interest in HS Orka.
• Completion of Soda Lake's Phase I expansion, resulting in an increase in annual net output from approximately 60,000 MWh to 84,000 MWh. Magma is now preparing an application for a US Treasury Grant payment of up to 30% of the eligible project costs.
• Completion of slim-hole drilling program at Mariposa, Chile. 

Ross Beaty, Chairman and CEO, commented, "In this second quarter of 2011 we boosted our existing production at Soda Lake, made significant progress on our immediate expansion opportunity in Iceland and completed our slim-hole drilling program at Mariposa with strong results. We are in well-advanced discussions with a group of Icelandic pension funds on the sale of a minority interest in HS Orka, as well as with potential partners for our Mariposa project in Chile. We are looking forward to filing our Energy Grant application for Soda Lake Phase 1 and to continuing Phase 2 of our expansion plans there. At the end of the quarter Magma's overall geothermal power production was 190 MW, our geothermal Indicated Resources were 181 MW and Inferred Resources were 990 MW. We are well-positioned to further advance all of these assets during 2011."

Financial Results
(expressed in thousands of dollars, except for MWh and per share amounts)

This is the first quarter in which HS Orka's results have been consolidated for the full period, therefore the results for this quarter are not comparable with prior periods. The results for the six months ended December 31, 2010 include the consolidation of results of HS Orka since the August 17^th 2010 date upon which Magma acquired control and are therefore also not comparable with prior periods. 

¹ EBITDA is defined by the Company as earnings before interest and other financing costs, taxes, depreciation and amortization, as well as before deductions for non-cash charges related to employee compensation, equity earnings/losses, loss on re-measurement of equity interest,  gain on bargain purchase and changes to the balance sheet carrying value of long-term debt. The Company discloses EBITDA as it is a measure used by analysts and by management to evaluate the Company's performance. As EBITDA is a non-GAAP measure, it may not be comparable to EBITDA calculated by others. In addition, as EBITDA is not a substitute for net earnings, readers should consider net earnings in evaluating the Company's performance.

For the second quarter of fiscal 2011 revenues from energy sales were $18.8 million and total costs of production were $13.3 million, for a gross profit of $5.5 million. Approximately 46% of HS Orka's revenues are sold under power purchase agreements with prices indexed to the price of aluminum, resulting in higher revenues as aluminum prices increase.  The average London Metal Exchange aluminum price for the three months ended December 31^st, 2010 was $2,368 per tonne versus $2,107 per tonne for the first quarter of this fiscal year. Our Soda Lake operation contributed revenues of $1.7 million and accounted for $1.1 million of production costs, while HS Orka contributed $17.1 million of revenues and accounted for the remaining $12.2 million of production costs.

EBITDA for the quarter was $6.2 million compared to an EBITDA loss for the same period last year of $3.0 million. The net loss for the quarter was $9.1 million or $0.03 per share, against a loss of $5.2 million ($0.02/share) for the same period last year. The increase in the net loss for the quarter of $3.9 million compared to the same quarter last year was primarily related to losses from changes to the fair value of debt and derivatives of $6.9 million, increased interest and other financing costs of $3.8 million and increased general and administrative expenses of $1.5 million. These were offset by increased gross profit of $5.1 million, foreign exchange gains of $0.1 million instead of the $2.3 million loss of the same period last year, reduced equity losses of $1.3 million, and increased interest income of $0.5 million.  

On a cash basis for the quarter ended December 31, 2010, the Company spent: $33.1 million on investing activities, including net investments of $26.7 million for the final payment related to the acquisition of the additional interest in HS Orka; $4.6 million to acquire and explore the Company's portfolio of exploration projects, primarily drilling at the Mariposa property in Chile; and $1.3 million on the Soda Lake and HS Orka expansions.  During the quarter, Magma issued 24,808,569 common shares to Geysir Green Energy ("GGE") to complete its obligations for the acquisition of its 98.53% interest in HS Orka, pursuant to the conversion of a subscription receipt as part of the consideration paid by Magma to GGE. At December 31, 2010, Magma had cash and cash equivalents of $20.3 million, working capital of $7.4 million (including $28.3 million in restricted cash), and long-term non-recourse debt of $284.0 million. 

HS Orka Operations

The Svartsengi 75 MW power plant and associated 150 MW district heating system, as well as the 100 MW Reykjanes power plant produced as expected during the quarter.  Production at Svartsengi was 117,079 MWh while the Reykjanes power plant produced 214,248 MWh.  A two-phase expansion of the Reykjanes plant's output to 180 MW from 100 MW is planned, pending permitting and new Power Purchase Agreements with one or more power purchasers.  For Phase I, the 50 MW Fuji Electric turbine has been installed and a Draft Conditional Permit for the expansion has been received. $38.6 million out of a budget of $131 million has been spent on the project and the remaining cost for the expansion is expected to be funded mainly from HS Orka's cash on hand and debt financing. 

Soda Lake Operation

Soda Lake's output for the quarter was 20,134 MWh, significantly higher than any other comparable period due to the completion of the Phase 1 productivity improvements, comprising two new production wells, a steam/mixing well system, plant refurbishments and the drilling of an injection well. The estimated net gain is 4 MW (24,000 MWh/year).   Approximately $21 million has been spent on Phase 1, and the Company is now applying for the US Treasury Grant for up to 30% of the eligible project costs.  During the quarter, Magma began work on the Phase 2 expansion with further temperature gradient well drilling and seismic data analysis.

Exploration Activities

Exploration work during the quarter consisted mainly of completing slim-hole drilling and analysis at the Mariposa reservoir in Chile, following which plans for large diameter exploration wells are being developed and partners are actively being sought. In Peru we have applied for a total of 27 geothermal concessions and are anticipating the awarding of the concessions shortly. Magma continued environmental and geosciences work at our 12 US properties, of note with a draft Environmental Assessment being submitted for McCoy for a planned Phase 1 drilling program later in 2011.

Outlook

Mr. Beaty concluded, "We remain focused upon expanding our production at HS Orka and Soda Lake, advancing our Mariposa project in Chile to large-diameter drilling and commencing detailed exploration of our Peruvian and U.S. properties concessions. We will bolster our ability to finance these activities through partnerships, supporting grant and loan programs and appropriate debt facilities, and we will continue to seek opportunities to expand our global asset portfolio. Finally, I welcome John Carson to the Company as Executive Vice President. He is a seasoned renewable energy financial executive and adds great depth to our senior management team."

About Magma Energy Corp.

Magma Energy Corp. is a geothermal power company which operates, develops, explores and acquires geothermal energy projects.  We have an extensive portfolio of properties throughout the western United States, Iceland and Latin America, including one operating power plant in Nevada and two in Iceland. 

Cautionary Note regarding Forward-Looking Statements and Information

This news release contains certain "forward-looking information" within the meaning of Canadian securities laws, which may include, but is not limited to, statements with respect to future events or future performance, management's expectations regarding our growth, results of operations, revenues, requirements for capital, future demand for and prices of electricity, business prospects and opportunities, exploration and development, geothermal resources, recoverable geothermal energy or energy generation capacities. Such forward-looking information reflects management's current beliefs and is based on information currently available to management. 

In addition, it is worthy of note that the financial results of HS Orka represent the first operating year of the company in its present form.  As such, future results could differ materially from those reported or anticipated.  Accordingly, prospective investors should not place undue reliance on the current reported financial results.  Other than as required by applicable securities laws, we assume no obligation to update or revise such forward-looking information to reflect new events or circumstances.

A number of known and unknown risks, uncertainties and other factors, may cause our actual results or performance to materially differ from any future results or performance expressed or implied by the forward-looking information.  The forward-looking information is based upon what management believes to be reasonable assumptions, including, but not limited to, assumptions about: the success and timely completion of planned exploration and expansion programs, the growth rate in net electricity consumption; support and demand for non-hydroelectric renewables; government initiatives to support the development of renewable energy generation; the accuracy of reserve estimation methodology and analysis used to estimate the quantity of potentially recoverable thermal energy; geological, geophysical, geochemical and other conditions at our properties; the reliability of technical data, including extrapolated temperature gradient, geophysical and geochemical surveys and geothermometer calculations; capital expenditure estimates; availability of capital to fund exploration, development and expansion programs; and general economic conditions.     Forward-looking information and statements are also based upon the assumption that none of the identified risk factors that could cause actual results to differ materially from the forward-looking information and statements will occur.

There can be no assurance that the forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information.  Accordingly, prospective investors should not place undue reliance on forward-looking information.  Other than as required by applicable securities laws, we assume no obligation to update or revise such forward-looking information to reflect new events or circumstances.

SOURCE Magma Energy Corp.

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