April 18, 2011 / 10:49 AM / 7 years ago

UPDATE 2-Magma Iceland sale should ease political tensions

* Sale to Icelandic pension funds

* Magma’s shares rise 1 pct

* Original deal criticized by Iceland politicians, Bjork

* Funds have option to raise stake in Orka (Recasts with stock price move, analyst’s comment, background. In U.S. dollars unless noted)

VANCOUVER, British Columbia, April 18 (Reuters) - Magma Energy MXY.TO said on Monday it will sell a quarter of its stake in Icelandic geothermal power company HS Orka for about $71.5 million, a move that should defuse some political opposition to the original deal.

Magma, a Canadian-based geothermal developer, is selling the interest to a group of Icelandic pension funds for about the same amount that it originally paid for the stake, Magma said in a long-promised announcement.

Magma’s stock was up 2 Canadian cents, or 1 percent, at C$1.06 on the Toronto Stock Exchange on Monday afternoon, going against a weaker overall market.

Magma’s purchase of more than 98 percent of HS Orka angered some Icelandic politicians and activists, notably well-known singer Bjork, who say the island’s natural resources should not be owned by foreigners.

The Icelandic pension funds will also hold an option until Feb. 10 of next year to buy new shares of HS Orka. If the option is exercised, the pension funds’ stake in HS Orka could go up to 33.4 percent for about $41.7 million.

The sale by Magma also gives it cash on hand to expand HS Orka’s Reykjanes geothermal project in Iceland to 180 megawatts from its current 100 MW level, Mackie Research analyst Matt Gowing said.

Magma expects the deal to close in May.

$1=$0.97 Canadian Reporting by Nicole Mordant in Vancouver and Gowri Jayakumar in Bangalore; Editing by Vyas Mohan and Peter Galloway

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