Magma Energy Completes Purchase of a Further Interest in Icelandic Geothermal
Energy Producer HS Orka

VANCOUVER, Aug. 17 /CNW/ - Magma Energy Corp. (TSX: MXY) announces that its wholly-owned subsidiary, Magma Energy Sweden A.B., today has closed a portion of a previously announced agreement to acquire further shares of Iceland geothermal company HS Orka hf. Magma Sweden now holds an 84.21% interest in HS Orka. The acquisition was originally announced in a press release dated May 17, 2010.

In today's transaction, Magma Sweden acquired 38.03% of HS Orka's outstanding shares from Geysir Green Energy ehf in consideration for:

    
    -   payment today of 3,871,195,513 Icelandic Kroner ("ISK")
        (approximately US $32.3 million);

    -   issuance today of 24,808,569 subscription receipts of
        Magma Energy Corp.; and

    -   payment on November 30, 2010 of approximately 3,062,612,586 ISK
        (approximately US $25.6 million), subject to certain interest
        adjustments.
    

Each subscription receipt will convert into one common share of Magma Energy Corp. on December 18, 2010 for payment of no additional consideration. Magma Energy Corp. has the right at its sole option to repurchase the subscription receipts, in whole or in part, at prices ranging from 135.90 ISK to 142.24 ISK per subscription receipt at certain times between September 4, and December 11, 2010. The maximum aggregate cost to repurchase all of the subscription receipts will be approximately US $29.5 million.

Magma Sweden's previously announced agreement to acquire Geysir's remaining 14.32% interest in HS Orka has not yet closed and remains subject to certain outstanding closing conditions, which are expected to be met in the near term.

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 and prospects for closing our acquisition of a further interest in HS Orka. Such forward-looking information reflects management's current beliefs and is based on information currently available to management.

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, including, but not limited to, risks that: conditions to closing Magma Sweden's acquisition of a further interest in HS Orka may not be met; the government of Iceland may take actions to invalidate or wind-down Magma Sweden's acquisition of a further interest in HS Orka; the government of Iceland may take steps to invalidate or wind-down the prior privatization of Hitaveita Sudurnesja (now HS Orka); the government of Iceland may pass legislation or constitutional amendments to nationalize or restrict private or foreign ownership in Iceland's energy sector; 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.

For further information: Alison Thompson, Vice President, Corporate Relations, Magma Energy Corp., Phone: [phone], Email: [email protected]