Just beginning to evaluate...appreciate others thoughts. The basic deal here is UCG...Underground Coal Gasification. Company claims to be the world leader. Is an Aussie company...website here: http://www.lincenergy.com/linc_vodcasts.php
Interview below came out today...very interesting read to me:
http://www.lincenergy.com/data/asxpdf/ASX-LNC-490.pdf
Linc Energy Ltd
Date of Lodgement:
24/06/13
Title:
“
Company Insight
–
Milestone UCG
Developments”
Record of interview:
companyinsight.net.au
Linc Energy Ltd (ASX code LNC, market capitalisation of ~$
0.5
billion) has
recently
announced
two
developments in Underground Coal Gasification (“UCG”).
Why are these
developments so important to Linc Energy?
Linc Energy Managing Director and CEO, Peter Bond
The recent developments in South Africa and Russia respectively are extremely important for
UCG and, more importantly, Linc Energy.
Linc Energy is widely regarded as the world leader in UCG and these developments, along
with
previously announced opportuni
ties and our pipeline of future opportunities, showcase
the strong demand for our proprietary UCG technology and know
-
how in an industry that is
finding a significant niche in the global energy mix.
And it’s very important that Linc Energy continue
s
to establish itself with first mover
advantage in what is a rapidly developing commercial energy industry.
Thus the Exxaro deal in South Africa and the most recent UCG to GTL agreement in Russia
are all large stepping stones to Linc Energy establishing a
nd developing the UCG energy
industry on a global footprint.
To put the potential of UCG as an industry in context, every
tonne
of coal gasified produces
the
same
energy
as
1.5
-
2
barrels of oil; or more than 20 times the energy which could be
produced
from the same tonne of coal via coal seam gas (CSG) extraction.
So you get a sense
of what
it means to be the in
dustry’s leader and first mover.
A
nnouncements like the ones
we've just made are very significant.
Whilst Linc
Energy does have some outstanding assets in oil, shale and coal, the upside of
UCG is globally significant.
Importantly, for shareholders, we are structuring these deals to allow us to participate in the
upside potential whilst limiting or eliminating our
capital expenditure and risk exposure.
companyinsight.net.au
You hinted at future announcements in UCG.
Can we expect more deals like this from Linc
Energy moving forward?
How big a part could UCG play in the global energy supply mix?
Linc Energy Manag
ing Director and CEO, Peter Bond
Our
recent
ASX
announcements mark significant milestones for Linc Energy.
We have developed a world
-
class technology that will contribute to meeting future global
energy demands and these deals are just the beginning of t
hat reality.
We currently have a number of projects in the pipeline and we continue to look for more
licensing or joint venture UCG opportunities to allow us to expand the UCG business.
After
all, building an entire energy platform on a global scale, even
if a lot of the capital cost is
being paid for by our joint
-
venture partners, offers up massive opportunities for our industry
-
leading company.
For a number of years now Linc Energy has been both the driving force
and the first mover across the globe on t
his front.
Thus the reality is we are looking at or
working up at least a dozen new deals at any one time.
So yes we expect to announce more
UCG
deals over the coming months and years.
UCG is
quickly becoming the exciting commercial opportunity for Linc E
nergy that we always knew
it would be.
companyinsight.net.au
For those unfamiliar with this technology, what is Underground Coal Gasification?
Linc Energy Managing Director and CEO, Peter Bond
UCG is the process of extracting energy contained within a
coal seam without mining it in
the traditional sense.
In the simplest terms, we access the coal deep underground using modern directional drilling
techniques, creating a connection between an injection and a production well.
Using our
proprietary technolo
gy, the coal is then heated underground to approximately 1,000
degrees
Celsius
, transforming it in situ into synthesis gas or ‘syngas’.
The syngas is then extracted
through the production well and may be utilised for power generation or as a feedstock
in t
he
production of liquid fuels, fertilisers or other chemical products.
Syngas can also be
transformed
into clean, pipeline
-
quality CH4 gas (methane) for domestic and commercial
use.
We have proven the UCG concept to be a well understood, cost effective,
controllable,
environmentally robust and reproducible process.
Also,
UCG syngas which has been
transformed
into clean, pipeline
-
quality CH4 gas (methane) would be a
significantly
cheaper
alternative in many parts of the world than imported LNG (Liquefied N
atural Gas), natural
gas or Compressed Natural Gas
(
CNG).
It is also fast and
relatively
easy to
deploy.
W
e could have UCG gas production on virtually
any site within six months from first drilling.
In fact, any country that has deep coal but is
short on
gas, oil, fertilisers could utilise UCG and I believe in time, most of them will.
companyinsight.net.au
Why is Linc Energy regarded as the world leader in UCG and what is the competitive
advantage of Linc
Energy
’s UCG technology?
Linc
Energy Managing Director and CEO, Peter Bond
It quite simply comes down to our experience and know
-
how.
Linc Energy is the only company in the world to successfully combine and demonstrate UCG
and GTL technologies at our Chinchilla Demonstration Facility
in Australia, which was first
established in 1999.
Here, we have developed and operated five successive UCG gasifiers
and a GTL pilot plant without incident.
Our experience also includes the development and validation of a series of models to predict
an
d control the technology in regards to site selection, prevention of groundwater impact and
land subsidence, whilst maximising gasifier performance.
Linc Energy is also the majority owner of the only commercial UCG operation in the world
–
Yerostigaz, loc
ated in Uzbekistan.
Operating since 1961, Yerostigaz continues to operate at
consistent and reliable syngas production levels.
A total of 1,000,000 Nm
3
per day is
currently supplied for
power generation to the state
-
owned power station in Angren and there
is sufficient coal in reserve to continue this operation at current capacity for at least another
50 years.
companyinsight.net.au
What product
s
does UCG create and how can it be utilised?
Linc Energy Managing Director and CEO, Peter Bond
UCG syngas is
an ideal feedstock for gas turbine power generation, delivering
up to
a 25%
reduction in greenhouse gas emission compared with conventional coal
-
fired power stations.
You can also produce pipeline quality gas for domestic or commercial consumption.
In
combination with the Fischer
-
Tropsch Gas to Liquid (GTL) process, UCG also has the
potential for producing large amounts of clean
er
, synthetic diesel and jet fuel as well as other
liquid fuels.
Similarly to natural gas, syngas can also be applied to vario
us other downstream processes,
such as fertiliser production.
The other significant value of UCG is its ability to deliver access to stranded coal resources
otherwise commercially unviable
–
that is, seams that are too deep or of too poor a quality for
tr
aditional extraction.
UCG has a higher efficiency of extraction over conventional coal mining methods, involves
lower costs and lower risks compared to conventional mining methods for deeper seams and
greatly improved cost efficiencies over surface gasifi
cation, as well as being much faster to
deliver.
companyinsight.net.au
What size of projects can we expect from Linc Energy moving forward?
Linc Energy Managing Director and CEO, Peter Bond
We have a pipeline of UCG projects that we’re assessing and adv
ancing to a commercial
stage. The size and scope of the projects differ from region to region, but what you’re seeing
us undertake in Southern Africa in particular, is on par with what we are working to execute
in other parts of the world.
In some cases w
e are currently working with governments and industry to potentially replace
material volumes of a particular country’s gas imports, which will move it closer to energy
independence.
In cases like this we could become the number one or two gas producer in
that
country.
A number of projects currently under development will have the capacity to supply well over
1 billion cubic metres of gas per year
per project site, which is game
-
changing for many
regions starved of long term gas supply.
companyinsight.ne
t.au
You have announced two developments in the last month.
Could we please start with the
Exxaro
Resources
deal in Sub
-
Saharan Africa?
What are the key terms of th
at
Agreement?
Linc Energy Managing Director and CEO, Peter Bond
Under the agreements,
Linc
Energy will receive an upfront
IP
licence fee of AUD$20
million; ongoing royalties for the synthesis gas produced and sold; a further AUD$7 million
on the initial UCG project passing agreed performance tests, currently scheduled for 2017
and engineering fe
es for services provided to the partnership.
Last year, we received a
separate AUD $3 million from Exxaro upon signing the Terms Sheet.
All up, we will receive
$30 million as upfront payments.
Linc Energy has agreed to take a
minimum 15 percent equity in
the initial UCG project, plus
an option for up to 49 percent equity participation in all UCG project developed by Exxaro.
This flexibility is obviously important to us.
The deal with Exxaro
demonstrates the real, tangible value of what our technology can
deliver.
Partnering with a major company of Exxaro’s standing speaks volumes of Linc
Energy’s
leadership, capability and know
-
how in the UCG space and is a credit to our world leading
UCG technical team.
This deal is the first of a number of opportunities we expect to execute in the short
-
to
-
medium term and provides a benchmark for the t
ypes of deals Linc Energy is pursuing across
the globe.
companyinsight.net.au
Turning to the project economics for a moment, how does Linc Energy intend to fund the
15% equity in this project?
Will this require further cash raising?
Linc Energy Managing
Director and CEO, Peter Bond
No.
We have a fully developed cash flow and economic model of what we believe the first
project will look like and are very comfortable with our position.
We expect the first project to be one of significant power generation,
around 250MW
–
and
based on the cost recovery model agreed with Exxaro for the engineering services we deliver
to the project, as well as licence fees, our total capital exposure for 15% of the project is not
material and will not require any additional f
unding.
That is, the revenues we have, and will, receive ahead of the project becoming operational
means
that our capital exposure is
not material
.
And importantly, our UCG Division will be cash
-
flow positive and start paying its own way
virtually immedi
ately, which is also a great milestone to have achieved.
companyinsight.net.au
Can you provide further detail to the market on the royalty to Linc Energy for this project?
Linc Energy Managing Director and CEO, Peter Bond
As is the case with most of the
se commercial deals, we can be limited in what we can say on
such matters.
But I can say that the royalty is a set fee per gigajoule of gas produced and will
be indexed to Australian CPI from December 2012 and escalating in line with each relevant
project
country index for power purchases.
As we progress further into the project and the appropriate approvals take place, there will be
a time in the future we will be able to reveal the quantum of royalty
.
companyinsight.net.au
What are the next steps now fo
r the project with Exxaro in South Africa?
Linc Energy Managing Director and CEO, Peter Bond
Linc Energy’s Technology and Business Teams are currently working with Exxaro in South
Africa to develop the forward plan.
We have an exploration program in place, headed by
Exxaro, to ensure the resource fits the specifications to make the project successful.
All
indications to date indicate that the resource is suitable.
We’ll commence the concept engineering stage later t
his year and we hope to take that into
pre
-
front
-
end engineering design stage next year.
Ultimately, project execution is scheduled
for 2015 to 2017.
companyinsight.net.au
What role will the UCG projects play in solving some of the power and fuel shortage
s in
S
outhern Africa?
Linc Energy Managing Director and CEO, Peter Bond
Sub
-
Saharan Africa
is short of power and our first UCG project with Exxaro will focus on
providing much needed feed stock to support new power generation in the region for years to
c
ome.
Future projects under investigation with Exxaro include sourcing UCG feedstock for
liquid fuels and fertilisers. The economics on these projects are also very attractive.
companyinsight.net.au
Turning to the announcement of the arrangement in Russia
, can you please provide some
information on the importance of this announcement?
Linc Energy Managing Director and CEO, Peter Bond
We have long identified Russia as an outstanding opportunity for Linc Energy’s UCG
business.
We have been searching for t
he right partner for a while now and believe that our
collaboration with LLC YakutMinerals, an affiliate of Ervington Investments Limited, is the
right partner and will allow us the opportunity to move quickly towards a commercial project.
The current ar
rangement is focused on the Chokotka region of Russia, which has stranded
coal resources and strong demand for liquid fuels.
We can provide the local solution and
hope to grow the business to allow for the export of liquid fuels.
It is great validation of
our UCG technology and operational experience that LLC
YakutMinerals has decided to collaborate with Linc Energy and, importantly, fund the initial
screening and opportunity assessment study for the first of what we hope will be many
projects.
We look fo
rward to updating the market on future projects in the Chokotka region in the
coming months.
companyinsight.net.au
And
finally
Peter, I note Adani Mining
has progressed plans to build a new 300
-
kilometre
railway to ship coal from its yet to be constructed Carmichael Mine in the Galilee Basin to
Abbot Point, with the lodgment of a Referral of Proposed Action with the Federal
Environment Department
and news o
n the transmission line to support the mine
.
This must
be welcomed news by Linc Energy?
Linc Energy Managing Director and CEO, Peter Bond
Adani is a world
-
class operator with a huge depth of experience in project development, so
it’s no surprise to see p
ositive momentum on the Carmichael Project, and associated rail line.
We continue to have a good relationship with Adani and from all accounts they are
progressing well and on
-
schedule to meet their target production date of 2016.
Following our
sale of the Carmichael Coal Tenement to Adani in 2010, Linc Energy holds a $2 per tonne
royalty (indexed to CPI) over the first 20 years of production, so progress on this project is
certainly welcome news to Linc Energy and our shareholders.
companyinsight.net.au
T
hank you Peter.
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