memorandum FMNJ
Date: October 13, 2008
From: The Office of the President
To: Franklin Mining, Inc. Shareholders
Last month’s Memo (headline State of Affairs, Part I) addressed the current status of our Escala Mine joint-venture in Bolivia.
This month’s Memo will be devoted to a discussion of our gas to liquid project in Argentina … our oil project in Texas will be discussed in a future Memo.
State of Affairs, Part II
Our GTL project in Argentina’s Tierra del Fuego Province has been a long time in development but we’re finally approaching the final stage prior to formally signing the agreement.
Some of you might still be wondering how a 134 year old US mining company found its self set to become one of the largest producers of liquid fuel from natural gas in Argentina, the country set to become a world leader in GTL technology. The answer is Franklin saw what was becoming a series of local energy crises in many communities in several countries in Latin America. As a solution, we designed the concept of taking stranded or flared gas and converting it to liquid fuel primarily for automotive and transportation use within local markets. Something I’ve recently begun calling our
Massive Challenge, Great Opportunity
Argentina needs local diesel fuel production resources. Tierra del Fuego has an abundant supply of natural gas. Franklin saw GTL technology as an opportunity to assist Argentina in meeting their growing energy demands in an economical, environmentally friendly manner.
We all need energy. We all care about the environment. And since there’s no single fuel that meets all energy demands, every reasonable option must be explored. Argentina considered their options and agreed that GTL was best for them.
Diesel is the world’s fastest growing motor fuel. As demand for crude oil increases, the ability to supply petroleum-based diesel is becoming more difficult.
Diesel produced via the Fischer-Tropsch process typically has 5 or fewer PPM (parts per million) sulfur levels versus 500 PPM allowed in ultra low sulfur diesel. The process is scalable, easily applied to both large and small deposits of natural gas. Fischer-Tropsch produced diesel from natural gas is comparable to conventional diesel but with a higher octane number (permitting superior performance), a low aromatic content and a very low sulfur content. The Fischer-Tropsch process also produces naphtha and other specialty petroleum products.
The GTL production process mixes natural gas with oxygen in a reaction to create a synthetic gas which is then passed through a Fischer-Tropsch conversion process producing a waxy synthetic crude which is then upgraded in a hydrocracker. Most companies involved in GTL production have their own proprietary technology designed to integrate the three steps and optimize efficiency … but the three stage process is common to all GTL technologies.
With Tierra del Fuego’s abundant natural gas resource for use as feedstock, the benefits of our planned GTL facility versus LPG and CNG facilities include:
- Very high quality diesel and naphtha are produced
- Waxes and base oils can also be produced
- GTL diesel can be used in conventional compression ignition (diesel) engines
- GTL enables significant reductions in exhaust gas emissions by combining a very high octane number (over 70 compared to a standard of 50-53) with a very low sulfur content
- GTL diesel is compatible with current and planned engine and exhaust gas after treatment technologies
- Unlike LPG and CNG and their requirements for larger footprint processing plants, dedicated pipelines and separate distribution systems, GTL diesel is compatible with existing fuel distribution infrastructures
As for Franklin and our project in Tierra del Fuego, Argentina:
- Our planned plant layout and process design is rated at 5,000 barrels per day of natural gas condensate and GTL fuel.
- Economic pro forma is based on a two year Phase I of condensate recovery followed by full-scale production during Phase II
- Construction of Phase I’s condensate recovery facility will require 8 – 12 months and generate $2.6 million USD annually at current market values
- Construction of the full GTL processing facility requires 28 – 34 months and generates in excess of $93.0 million USD annually at current market values
At full-capacity, our plant design is estimated to be producing:
- 957,000 barrel per year of diesel grade distillate produced from natural gas feedstock
- 669,000 barrels per year of blending grade gasoline from natural gas feedstock
- 4,125 barrels per year of liquefied butanes before GTL operations
- 5,000 barrel per year of liquefied ethane
- 33,000 barrels per year of liquefied propane
In addition,
- Excess electrical power is produced during the GTL process and will be used on-site with a future possibility of a net positive metering back to the local utility
Investment cost is estimated at $250 million USD with a projected 45% return on investment beginning in the first full year of Phase II operations.
What does GTL mean for Franklin’s future?
… how did we get to where we are?
… how are we going to finish all of these projects?
During my first 13 months as your President, I have worked to reopen the Escala Mine in Bolivia, develop this GTL project in Argentina and establish our partnership in a producing Texas oilfield. None of this would have been possible without your encouragement and support.
The cost of this growth and development has been made possible by equity financing. The number of shares we’ve had to issue is a concern that some shareholders have expressed to me. But, I ask you to remember that we’ve incurred no significant debt.
Now that we’re entering a stage of tremendous opportunity, I will be returning to the capital markets for debt financing. The GTL project is bankable, so to speak. I have completed many meetings with banks and other financial institutions expressing an interest in helping Argentina use their abundant natural resource to meet a growing need for energy and transportation.
Shares issued so far have been used for the monthly operational expenses of four offices in three countries, development plus operational and capital expense at the Escala Mine joint-venture plus development of the GTL project and development of the Texas oilfield partnership. Additional shares necessary to be issued will be in the support and further development of projects contributing to increasing the future value of our company.
With that in mind, allow me to sign-off this Memo with a reminder that I will discuss our Texas oilfield investments in similar detail in my next Memo, State of Affairs, Part III.
Sincerely,
William A. Petty, CEO
P.S. To follow-up on a housekeeping note, our new Franklin Mining web-site is nearly complete and will be unveiled later in October. As I said last month, I believe you will find the new site to be well organized and more easily used.
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