Vancouver-based Sierra Geothermal Power Corp. has signed a letter of intent to be taken over by a U.S. company in a stock-swap deal worth about $28.4 million.

The deal to be acquired by Ram Power Corp. of Reno, Nev. — if it goes ahead after a definitive deal is reached as planned by late June — comes amid continuing consolidation in the industry.

Old Faithful erupts in Yellowstone National Park in 2003. Geothermal energy harnesses undergound steam and water to power generating turbines at the surface. (Craig Mellish/Florentine Films/WETA/Associated Press)

The deal, announced Monday, would have Sierra shareholders receive one Ram share for every 12 common shares tendered.

Given Ram's closing price of $2.56 on May 28, the offer would value Sierra shares at 21.3 cents each, an 18 per cent premium.

A final deal depends on a settlement of all terms, due diligence and approval by Sierra's largest shareholders.

"We believe that Sierra shareholders will benefit from this transaction by merging into a well-capitalized geothermal company such as Ram Power," Sierra CEO Gary Thompson said in a release.

"This transaction comes as a continuation of our strategy to create a renewable energy company of scale, with the skilled management and capital in place to execute on our projects," added Ram Power CEO Hezy Ram.

Sierra's shares closed up two cents, or 11 per cent, to 20 cents on the TSX Venture Exchange Monday. Ram lost four cents to $2.52 on the TSX.

Harnessing geothermal energy involves piping naturally occurring steam and hot water from under the ground to the surface to drive electricity-generating turbines.

Ram merged with three other geothermal companies last year— Polaris Geothermal, Western GeoPower Corp and GTO Resources — and Sierra put itself up for sale in January.

Geothermal companies face pressure to get bigger through consolidation to raise the large amounts of capital required to get projects going.

With files from The Canadian Press