LNC - Linc Energy

[Jonathan111]

Hi luckypaul,

Hopefully thats a positive for the bargaining/negotiating thats going on.

There are rumors going around on other threads about a sale of Teresa in Feb.. However it could be all hogwash..

After reading the AER interview, it seems as though the expectations are lower now, $1.5b for all 3 assets, even with the upgrades.

Regards,
Jonathan


Alpha fuel cell ready and configured for LNC


AFC Energy reaches first milestone in Coal Gasification Agreement

Alpha unit ready for shipping, stage payment due, additional partners secured



AFC Energy (AIM: AFC), the developer of low cost alkaline fuel cells that generate clean electricity from hydrogen feedstocks, is delighted to announce that, further to its initial announcement on 8th December 2009, it has reached the first milestone under its agreement with Linc Energy Limited (ASX: LNC, Market Cap: cA$717m) and with B9 Coal Limited.



Linc Energy Limited ('Linc' or 'the Partner') is Australia's leader in clean coal technology, and intends to integrate the AFC fuel cell system for use in its global Underground Coal Gasification ("UCG") projects.


The combination of cheap and easy-to-produce synthetic hydrogen from UCG will make an ideal feed source for AFC Energy's fuel cell systems. Linc Energy will utilise a simple membrane gas separation process on the UCG gases to ensure a satisfactory rich hydrogen mix is available for feed-in to the fuel cell system.

In the two months since signing the agreement, AFC Energy has already configured and assembled an Alpha fuel cell system which is now ready for shipping to the first demonstration site, an operating UCG plant in Chinchilla, Australia. As such, the first payment is now due from Linc to AFC Energy.



Upon commissioning and successful trials of the Alpha unit, it is intended to install multiple modules at Chinchilla to form a larger c.50 kW AFC fuel cell system. All parties anticipate multiple installations of AFC Energy's 50kW system for full scale commercialisation.





Key terms of the agreement with Linc Energy are as follows:

AFC Energy has granted to Linc Energy worldwide exclusive rights to utilise and operate AFC Fuel Cells in conjunction with any UCG application for a period of 24 months

Linc Energy will purchase the first Alpha fuel cell system for 200,000, payable in instalments, with delivery anticipated within the next five months

Linc Energy will have the option for 24 months to extend the exclusivity period in perpetuity. To exercise this option Linc must invest 2.3 million in AFC Energy at a price determined in reference to the market price at the time of exercise

For Linc Energy-owned sites, Linc Energy will pay to AFC Energy an upfront payment calculated on the cost of delivery of fuel cell systems, and a royalty based on profits generated from the use of AFC Energy fuel cells

For Linc Energy-owned sites Linc Energy will pay to B9 Coal Limited, as introducer and broker to the transaction, a royalty equal to two percent of the net profits generated from the use of AFC Energy fuel cells

The operational system will permit the optimal usage of coal with minimal environmental damage. The project capital expenditure for power stations using AFC Energy's low cost fuel cell system is forecast to be less than that of conventional coal/IGCC power stations.



Ian Balchin, CEO of AFC said: "The Underground Coal Gasification opportunity securedthrough B9 Coal with Linc Energy is by far the largest potential market identified yet for AFC's low cost fuel cell technology. It is operational practically anywhere in the world where there are deep coal deposits and can create a 'Holy Grail' for future coal utilisation, with low-cost, highly efficient conversion of coal into power. When combined with Carbon Capture and Storage, this combination of AFC and Linc's innovative technologies can turn the dirtiest fossil fuel into the cleanest.



"We are very excited about working with Linc Energy and locking into the dynamism that has made them one of the fastest growing companies in Australia over the past few years. In parallel with our chlor-alkali opportunity, this programme enables AFC to demonstrate the increasingly wide application potential of its low-cost fuel cell technology".


Mr Peter Bond, CEO of Linc Energy said: "It makes infinite sense to marry the cleanest power generation technology with the cleanest gasification technology. The picture of success is that you have a UCG field producing cheap and efficient UCG gas, subsequently this UCG gas is piped above ground a short distance upon the same gas field, adjacent to the fuel cell installation. There the gas is cleaned and put through a membrane to enhance the hydrogen percentage that is fed into a smart and compact Fuel Cell power-generation facility that produces virtually no CO2 emissions. In fact the by-product that this power generation plant does produce is in high demand, and that is clean distilled water. The green power produced will then be fed into the local transmission grid. The future of this concept is simply staggering. It could easily be the ultimate answer for clean coal power many of us are looking for, and it's only one to two years away from commercial reality."
http://beta.investegate.co.uk/Article.aspx?id=201002220700294483H

 

[basilio]

Good strong news Johnathon. I think however that the first AFC fuel cell will be a 3.5 kw unit. The 50 kw units are still a way off. But it does sound like a quality , game changing technology. It will be interesting to see how the traditional coal fired stations respond to any success by Linc and AFC.

One point to remember. The current coal fired stations are running and are paid for. They represent a notional value of multiple billions of dollars and are the cash cows of very powerful companies.

New fuel cell based powerplants still have to be paid for (even if they seem to be cheaper than coal fired units. They can't of course be cheaper than units already in operation..) It will take an enormous amount of political courage to effectively outlaw current coal fired stations in favour of new systems just because they are environmentally friendly and cost competitive.

 

[luckypaul]

Hi Jonathon111

After reading the AER interview, it seems as though the expectations are lower now, $1.5b for all 3 assets, even with the upgrades.

I read that too but I'm sorry, I don't believe it, for the following reason.

The sale announced on 5th Sep 2008 http://www.lincenergy.com.au/pdf/asx-94.pdf was preceeded a few months earlier by a Jorc upgrade for Emerald/Teresa to 470 million tonnes (which was expected to be increased to 650 million tonnes) http://www.lincenergy.com.au/pdf/asx-87.pdf.

The Merriman Curhan Ford's analysis dated 17/07/09 said Emerald was 852 MT and Pentland 266MT. Here is that link http://www.mcfco.com/extend_Research...7-17-09).pdf

Also do not forget we will soon get updates on Galilee that could be significant (maybe to 10 billion) but current JORC is 7.8 BILLION tonnes.

That is a LOT more coal than was sold for AUD 1.5 billion in Sep 2008 and since then thermal coal prices are only down 35% (see my post above) from Sep 08 whilst the Emerald/Teresa inferred resource is up 80% (from 470 to 852).

AUD 1.5 billion for Emerald alone maybe!

For Pentland and the MASSIVE Galilee too...I'd want lots, lots more. Maybe AUD 4-6 billion??? I think that is part of the reason for slow progress, i.e. too few companies around that can swallow that size of investment. We shall see but I think my logic above makes sense. Feel free to comment even if it is a slapdown for being ever hopeful. Note: I am a long time holder so definitely positively biased :

 

[rileyi]

Luckypaul, I think you are too optimistic with your figures. The original $1.5bil for the first two projects was because the Chinese approached LNC and asked them what they wanted. PB threw a large figure at them, and they initially responded positively.
The coy is more realistically thinking $2bil for all three now.
At current shares issued, that is still over $4 per share.
Better to be surprised by the result, rather than expecting too much and ending up disappointed.

 

[Mickel]

Luckypaul, I think you are too optimistic with your figures. The original $1.5bil for the first two projects was because the Chinese approached LNC and asked them what they wanted. PB threw a large figure at them, and they initially responded positively.
The coy is more realistically thinking $2bil for all three now.
At current shares issued, that is still over $4 per share.
Better to be surprised by the result, rather than expecting too much and ending up disappointed.

Hi Riley

While I agree with your last statement in general, I'm more inclined to agree with Luckypaul.

I refer to my post of 19/11/09 (# 1067) where I updated the Merriman Curhan Ford's analysis dated 17/7/09 to reflect the changed JORC tonnages and exchange rates. Their analysis was based on the price of coal in July 09, so it's reasonable to say the prices are now conservative.

My estimated fair value at that time for the 3 tenements was $4174M. In subsequent conversation with senior LNC management following the AGM on 26/11/09, I gained the impression that this estimate ($4174M) was not unreasonable.

With possible increase to JORC total for Galilee and PB's recent statement that the mine plan for Teresa is even better than he hoped for, I can't see how their thinking has changed.

I'd be interested to know on what basis you make the statement that the Coy is thinking $2B for all 3 tenements.

I am a long term investor in LNC.

 

[Mickel]

I agree with other members that both Coal Face and Smurf have contributed some very interesting and informative posts.

As the initial Hydrogen fuel cell to use Syngas appears to be headed to Chinchilla, no doubt there will be further discussion on power generation in S E Qld.

One comment was made on the water crisis in SE Qld and a reference given that stated Brisbane's 3 major dams had only 28% capacity. This reference was dated July 06, and while the dams capacity fell further to just under 17%, thankfully that situation is long past.

Currently the dams have over 73% capacity. Furthermore, Swanbank Power Station which contributed to the decline by drawing over 2b litres pa from the dams, now draws recycled water from the water grid.

So, there is unlikely to be a shutdown (or reduced operation) of any power stations in SE Qld over the next 5 years or so for lack of water.

 

[Mickel]

And on top of all that, good old supply and demand both legitimate and through gaming the market. The former is pretty simple - if demand is high and supply is tight and you own a large power station then, even at risk of losing some volume, you can hike prices to ridiculous levels.

Gaming is a bit different and is basically an exploitation of the technical limits of rival generating companies. You offer a low price, possibly even negative, and force others off-line (generally a financial decision rather than technical) when demand is low and price forecasts for the next few days are also low. Then when that's done, you just wait until demand is near its' daily peak and suddenly revise all your pricing to ridiculous levels knowing that rivals can't possibly ramp up production quickly. Instant windfall...

There's a lot of differnt approaches to this gaming of the market but a very key one is mainaining the impression of you being a danger to rivals, someone who can send the price wherever they like but in a manner that nobody can predict. Beyond that, there's lots of actual strategies going on. Selling forward large volumes during high price periods, then using your own production to crash the market at those times so as to cover what is effectively a short position, is another one that comes to mind. Lots of games in this industry...

Smurf, I was surprised to learn that this is happening in Australia. I seem to recall that a similar scenario was played out in USA (mainly California I believe) by Enron with disastrous results for business and industry because they couldn't afford the power at certain times.

Enron itself also collapsed. However I understand that fraud was at least partly responsible for Enron's demise.

Do you see many similarities between Enron in California and large suppliers in Australia ?

 

[sanj]

From what I see, at the rate Linc is burning through cash, they need asset sales ASAP or another capital raising will be on the cards. The amount of staff they are hiring are not working for a pat on the back. Although todays purchase appears to be minnimal and the so call rewards appear to be great 1mil outflow of cash is substanial when you only have just over 20 mil left. The opening of offices in USA and now Alaska will also contribute decent size outflows of cash. The purchases of these AFC cells is another outflow to consider as well as theier goals of fast tracking SA with a pre-commercial ucg operation.

I am a big fan of what they have to offer, but they really do need to get thier cash position in a better position sooner than later.

 

[Mickel]

Two new announcements from LNC today. -

http://www.lincenergy.com.au/pdf/asx-210.pdf

http://www.lincenergy.com.au/pdf/asx-211.pdf

On the Coal Sale update-
"The sale of coal tenements at Emerald, Pentland and Galilee is progressing albeit more slowly than hoped. The Company continues to pursue sale outcomes that reflect full and fair value for these high quality assets on behalf of its shareholders. Discussions and negotiations are continuing with a number of overseas interests and Australian based mining houses. The interested parties are in some cases negotiating to buy all three assets and in other cases individual assets.
Some of these negotiations are at a very advanced stage. A written offer for the purchase of all three coal assets has been received from one party and whilst negotiations with that party are now at a very advanced stage, the Company is continuing to progress all potential avenues until a sale(s) is realised. The Linc Energy board has insisted that a sizable deposit accompany any signed sale agreement. Accordingly, a considerable amount of time has been spent working through these financial details from the buyers side to ensure that ultimately the Company achieves a smooth and successful transaction that serves all parties."

My view of a sizable deposit would be a minimum A$200M.

It goes on to state that MineCraft Consulting gave a 3rd party conservative valuation of Teresa at AUD $529M and LNC value Galilee at over AUD $1B.

So LNC could be indicating that the total conservative value of the 3 assets may be around A$2B. I'm still of the opinion that they are looking for a lot more than that.



The other announcement covers finalization of the US purchase of the coal tenements.

The announcements had a positive impact on the S/P, rising from $1.47 to peak at $1.67, before closing up 8c at $1.56 on volume of 8.9M shares

 

[luckypaul]

I think the fact that we have had a "Coal Sale Update" is great news!

Linc have been very quiet up until now for fear of "crying wolf" (again) and announcing before things were set in stone. I am guessing that this announcement means that they COULD now finalise things based on the offer they have on paper (value undisclosed). Otherwise, why announce anything at all at this point? To me that implies that the offer on paper is at least within their expected ballpark.

If they do have a reasonable offer already on the table they are now in an extremely strong position, what with waiting for final resource upgrades for Galilee and potentially better offers from other parties.

The downside is that this could still take time from here especially if an overseas offer needs FIRB to do its stuff again (unless the last 'OK' still stands - which I doubt since the scope has changed so much). I am still confident investors will be positively surprised by the amount and the SP will experience the long awaited rise but more importantly Linc will be off the starting blocks once more but this time all 'cashed up' and ready to rock. I am a long term holder and a little excited about it all .

 

[basilio]

Promising signs from Linc. I'd like to get excited (and I am) but there has been a lot of water under the bridge since Sept 2008 and $5 SP.

And Linc isn't alone in this venture. Interesting story about a company calling itself Clean Coal in England looking at UCG. And guess what ? The chief executive is, wait for it, Catherine Bond. No idea if there is any connection between her and Peter Bond but it would be fun to find out.
The Australian experience also gets a plug.

One clear point is that there is squillions of tons of underground coal available for this process. And that the the issues of water contamination, out of control underground fires and carbon dioxide capture are still there.

Could burning coal underground take Clean Coal Ltd in too deep?

The coal 'gasification' stakes are high – not least because the company behind the plan is called Clean Coal Ltd


...Clean Coal is a small start-up company of engineers, geologists and venture capitalists, that has big plans for selling its expertise round the world. Last week, it unveiled plans to burn coal within 500m off the shore of the north Norfolk area of outstanding natural beauty.

But its chief executive, Catherine Bond, told the Guardian that the first project is likely to be in Swansea Bay "because we know the geology best". The other three sites are off Grimsby, Sunderland, and under the Solway Firth in Scotland.

Coal "gasification" is an old idea. Until half a century ago, Britain ran on "coal gas" manufactured at local gas works. What is new is cutting out the coal mining stage and doing the gasification underground.

In principle it is simple. You sink a borehole to the coal seam and insert a firelighter and oxygen to keep the fire going. The fire generates carbon dioxide, methane and hydrogen. You sink another borehole to extract the gases. There are technical issues. But trials on coalfields in Queensland, Australia suggest the technology may be ready to go.

And Bond says she has assembled "the top people in the northern hemisphere. Only the Queensland people are ahead of us. They are proving the technology."

http://www.guardian.co.uk/environment/2010/mar/04/coal-gasification-ccs

__________________

There is an excellent indepth analysis of UCG which draws on LINCs experience. One of the big issues identified was trapping CO2 effectively.

http://www.newscientist.com/article/mg17423454.700-fire-down-below.html?full=true

 

[Mickel]

The downside is that this could still take time from here especially if an overseas offer needs FIRB to do its stuff again (unless the last 'OK' still stands - which I doubt since the scope has changed so much).

My view on any FIRB approval is that it will be granted as-

1. The sale will enable LNC to start the plant construction and subsequent production of their GTL process.

2.The GTL production will allow Australia to replace oil imports with the GTL products and therefore be a huge financial benefit to the country as PB has said recently- http://www.lincenergy.com.au/video.php .

 

[basilio]

I am so surprised at the weakness in Linc shares today. The announcement was not set in stone but I thought that it offered sufficient information and activity to hold a bit more confidence in the marketplace.

On the face of it Linc has $2 billion plus in coal reserves that are steadily expanding in volume and appreciating in value. There are multiple buyers with at least one making a significant written offer.

And if/when the sale happens and the funds come through Linc has a well developed technology to turn coal into diesel at a time when Australia's oil supplies are falling rapidly.

Where is the downside? Surely even in a fire sale Linc's assets would be worth double the current price. Any thoughts?

 

[Nero64]

I am so surprised at the weakness in Linc shares today. The announcement was not set in stone but I thought that it offered sufficient information and activity to hold a bit more confidence in the marketplace.

On the face of it Linc has $2 billion plus in coal reserves that are steadily expanding in volume and appreciating in value. There are multiple buyers with at least one making a significant written offer.

And if/when the sale happens and the funds come through Linc has a well developed technology to turn coal into diesel at a time when Australia's oil supplies are falling rapidly.

Where is the downside? Surely even in a fire sale Linc's assets would be worth double the current price. Any thoughts?

If you read the announcement it says talks are in a very advanced stage. Does this ring any bells. Read the announcments for the past 12months and you will see similar statements made.

What am I getting at. The coal sale is not happening any time soon.

I would wait till it slips under $1.40 again. They have enough cash for now. No hurry.

 

[calais]

Hi everyone, would like to know how much cash Linc has at present.
Their cash burn rate seems high.

Looking at their past quarterly reports, they had 39 million end of Sept.

End of Dec. they had 24 million.

End of March ? Guessing 8-10 million.

At this rate they would need another capital raising in April, provided no sale in the meantime.

Apart from quarterly reports and presentations is there any other way of finding out the companys present cash position?

 

[mexican]

I am so surprised at the weakness in Linc shares today. The announcement was not set in stone but I thought that it offered sufficient information and activity to hold a bit more confidence in the marketplace.

On the face of it Linc has $2 billion plus in coal reserves that are steadily expanding in volume and appreciating in value. There are multiple buyers with at least one making a significant written offer.

And if/when the sale happens and the funds come through Linc has a well developed technology to turn coal into diesel at a time when Australia's oil supplies are falling rapidly.

Where is the downside? Surely even in a fire sale Linc's assets would be worth double the current price. Any thoughts?

I say get the sale over with $1 bill+ and get the show on the road.
Pretty much we all know it might be worth more, but it is holding back Linc with getting on with the job.
If they do sell for less than they wanted, it might be a good idea to keep a interest in the tenements 10%-15%. Make a bit of money once they are in production and then sell their interset after a couple of years. More $$$.
Just my own opinion but I think 8 weeks maximum until the deal is done.
Alot of good news has been announced of late but no reply from the SP and I think PB realises this now.
With the money Linc will be making in next 5 years, who cares about getting top dollar now for the coal tenements. Bring on the diesel, jet fuel, oil, gas, hydrocells, distilled water, kero, so on $$ and so on $$.

 

[Mickel]

An interesting broadcast of a recent Limelight Series presentation (I think it was in Adelaide on Fri 5 March) by Justyn Peters with segments by Matthew Buchanan, Nick Cox and Darryl Rattai.

http://www.brr.com.au/event/64398/linc-energy-limelight-series-presentation?popup=true&wl=76

Justyn, in his introductory and summary comments, had many informative tidbits-

1. Coal sale- they could have sold it some time ago for a lot less but are confident of getting a good price soon.
2. While important, the coal sale is not their only funding option to production.
3. Their staff is about to double (this year).
4. Power demand in Sth Aust will increase with commercial development at Olympic Dam and other projects.
5. Technical advancement with both the Syngas (UCG Generator 4)and the GTL process will lead to much higher gas production and therefore lower costs. Not fully realised by the investment community.
6. They believe (also confirmed by Nth American visitors to site) that they are so far ahead of UCG competitors as to have no competitors. Two other Qld UCG companies wanted to buy some of their Sth Aust leases.
7. Coal Seam Gas companies with overlapping leases are incompatable with UCG as CSG need to extract water from coal while UCG need the water in the coal.

The whole broadcast runs for over an hour.

 

[Mickel]

If you read the announcement it says talks are in a very advanced stage. Does this ring any bells. Read the announcments for the past 12months and you will see similar statements made.

What am I getting at. The coal sale is not happening any time soon.

I would wait till it slips under $1.40 again. They have enough cash for now. No hurry.

My view is that LNC cash on hand won't last past Jun 10 from various statements made recently. So there is some urgency.

On the other hand, the "Tiger" celebration is now over and business can proceed without delay.

I think, because of some of those announcements over the last 12 months to which you refer, Nero, that LNC is reluctant to make any announcement of a more positive nature, until they have money in the bank.

Also, I see on LNC's website "Events Calendar" that they will be presenting at a forum in Beijing from 13-16 April.

 

[Jonathan111]

I suspect that buyers were waiting for LNC to run out of cash at around June-July before putting their bid in for the coal tenaments, and that the recent offer may have been at the lower end of the ball park figure, with the bidder hoping that LNC would take the bait before any other interested parties got in with their bids projected for around June-July, these other parties may have been projecting to get their deposits and approvals ready for June. Now any other organisation thats seriously interested in the coal should come to the table with renewed motivation to ensure they dont miss out. Will be interesting and exiciting if this happens and even better if its more than two interested parites.

 

[noirua]

I suspect that buyers were waiting for LNC to run out of cash at around June-July before putting their bid in for the coal tenaments, and that the recent offer may have been at the lower end of the ball park figure, with the bidder hoping that LNC would take the bait before any other interested parties got in with their bids projected for around June-July, these other parties may have been projecting to get their deposits and approvals ready for June. Now any other organisation thats seriously interested in the coal should come to the table with renewed motivation to ensure they dont miss out. Will be interesting and exiciting if this happens and even better if its more than two interested parites.

An interesting position for Linc Energy who are trying to sell coal mines at a time when the thermal coal price is around US$93 a tonnes and BHP have secured US$200 for hard coking coal. Not forgetting, of course, that LNCs mines are mainly thermal coal with a prospective 2.5mtpa of semi-soft coking coal from the Theresa (emerald) Resource mine.

The easiest mine to sell will be the Theresa mine with an independant middle valuation of A$529 million and they should get close to this price.
The Galillee tenement has LNCs personal valuation of about A$1 billion so it remains very uncertain what an independent valuation might be. Seems a very high figure with the uncertainty over the thermal coal price.
The Pentland tenement, as stated by LNC, is worth much less than the other projects. In fact looks as if it will be thrown in as an extra if a bidder goes for all thee mines of around A$1.5 billion.

If Deloitte's valuation of Felix Resources has anything to go by, directors wanted to cash in their chips, then a price around A$1.0 to A$1.2 billion for all three mines and tenements can be expected, imho.

Market cap at A$1.56 is A$784 million but LNC are a quite complex company these days and valuation depends on many estimates or perhaps guesses.

I don't hold any stock but I'm watching very closely.