WEC - White Energy Company

Actually the ASX announcement disclosed something new when it mentioned new analyst reports released by Southern Cross today and a further one by Madison Wiliams already on September 15th. Unfortunately neither is available in the Analyst Coverage section of the WEC website as it was the case for previous studies from these companies.

recent Citi analyst report

The recent Citi analyst report covering WEC is available for download at https://www.citigroupgeo.com/pdf/SAU09787.pdf.

Mr Vincent O'Rourke is the latest former director of Felix Resources FLX to join the board of directors of White Energy; he is an owner of RMM who once had a 19.12% interest in FLX before selling out to Mr Hans Mende's AMCI. A mining rail expert vitally needed by the company.

Korean power monopolist KEPCO bullish for BCB-technology

Just came across Southern Cross' latest update from September, 25th, in which they mention Korean state-owned power monopolist KEPCO having taken a share of 20% of Bayan (WEC's JV-partner in Indonesia) in July at a considerably high price obviously anticipating the expansion of the Tabang project:

"In July Korean utility KEPCO bought 20% of WEC's Indonesian JV partner PT Bayan Resources for $515m and secured off-take of 2Mtpa from 2012 and 7Mtpa from 2015. The transaction multiple was c.US$2.60/t of resource, a huge price to pay for Bayan resources given that the average for Aussie coal transactions is A$2.70/t of resource, and many of those transactions include coking coal resources, whereas c.60% of Bayan's resources are of sub-bituminous coal. The maths suggests that KEPCO is counting on WECs upgrading technology to increase the value of Bayan's resources. It is true that KEPCO's power stations can run on low calorific value coal, and it could have agreed to pay a big price for Bayan's existing low quality resources. However WEC confirms that due diligence on the WEC process was significant prior to the transaction and a key motivator for the deal."

The high interest in BCB-technology among existing and potential JV-partners is obviously more than just touting.

All done and dusted as SAC shareholders receive the new issue of shares purchased under the takeover by WEC. Outstanding now are the performance shares for 2010 and 2011. About $57 million raised to advance the Indonesian assets as explained in the last post by Inquisitor.

interim report on easing woomera accessibility

Yesterday the government has published the interim report on the planned easing of accessibility to the Woomera Prohibited Area (WPA), which hosts the SACL mining tenements WEC acquired recently (EL4534, formerly EL3386).
The report proposes easing access to the WPA and streamlining application procedures. Further WPA shall be divided in three zones:
For the "core area" (south of 30 °S and east of Stuart Highway running at ~135 °E) no new permits shall be issued. Since this zone is situated 50km southeast of EL4534, WEC is not affected by this.
For the "zones of moderate Defence use" permits shall be issued on a time-sharing basis, so the applicants may access tenements during certain hours/days/weeks (details are unclear so far).
For the "zones of least Defence use" unlimited access should be granted "with Defence retaining the right to exclude access for a limited period each year following a fixed period of notice."
The Centre-Line Corridor (marked red in the map below), which runs over the southwestern part of EL4534 and covers ~60% of the coal-bearing surface will surely be declared a "zone of moderate Defence use":
p.24: "The Defence need for exclusive access is less frequent in the centre-line corridor, [...]."

Unfortunatley according to p.55 there's no hope this air corridor with a width of ~37km could be reduced:
"The Review is inclined to agree with Defence that the Range Centre Line Corridor should be maintained."

However based on the estimates published by Auiron Energy (renamed in Felix Resources later) in their Coal Mine Feasibility Study during the Annual Meeting in 2001 ("[They] succeeded in outlining 5 billion tonnes of sub-bituminous grade steaming coal with a low ash content around lake Philipson") and the estimates of the South Australian Chamber of Mines and Energy (SACOME) from August, 7th 2010 ("The size of the Lake Phillipson Coal Deposit in the WPA core area (or zone of exclusion in EL3386) is estimated to comprise about 3.6 billion tonnes." p.10 of thissubmission) in near future there should be some 1.4Bt of subbituminous coal in the effectively permanently accessible "zone of least Defence use" and some 3.6Bt in the "zone of moderate Defence", which will be accessible on a time-sharing basis.

Even if WEC installs BCB modules with a total capacity of 20 Mtpa (I assume there won't be transport capacity for more) the deposits in the "zone of least Defence use" should theoretically suffice for 50 years of production.

By the way the Wirrida Rail Siding loading station is situated some 3-4km within the zone of moderate Defence use, but I hope they will find a solution to be able of loading trains permanently.

All in all the interim report is very positive for the planned development of EL4534, so WEC might start construction of infrastructure already next year.

Hard to follow that excellent post on the Phillipson tenement.

Will be interesting to see what approvals are given to WEC in January 2011 as they need to get permission to mine at the Rankin coal seam, up to 100 million tonnes (this figure has been disputed in the past), where the Ingomar trial pit is situated. This area is only really good for a start-off (at the edge of the centre-line corridor) but a lot of work was carried out there by SAC and Flinders Power Partnership. The latter may yet request to take-up rights to coal with access rights ending and putting the position into agreed 'force majeure'.

You're right. After reading my post again I realized that I tried to get to many facts across with too few words. So again in two simple sentences:
According to the proposals of the interim report the northeastern half of the tenement, which WEC owns since the SACL-takeover, is very likely to be fully accessible soon, while the southwestern half will be subject to timely restrictions (but will be mineable anyway).
However the deposits located in the northeastern part will deliver enough coal to produce briquettes for a couple of decades.

Why do you consider the Rankin coal seam being only really good for a start-off? Is there too much overburden or any other issues that make coal recovery less attractive?

The Ingomar trial pit was first brought in to supply the Pig iron plant near Whyalla - this all fell apart in 2002 when the plant was cancelled - all a bit of a disaster at the time. The set-up there is good but the seams are single in nature and not multiple as in more favourable areas and a longway from the Phillipson siding.
A lot of money was spent on the Ingomar trial pit and it is all but up and running, despite being mothballed in 2002. Quite a lot of coal is lying on the surface under covers and a large area is cleared ready for excavation.
There ia a briquette plant and wash plant though I'm not certain of the positions, built in 2001.
However, there are two other places earmarked somewhere near the Phillipson lake for power washing coal though I seem to remember the idea was abandonned.
Corner Gate is the best area to mine coal at Phillipson as it's in very many multiple seams, though not that much work was carried out up to 2001.

Thanks.

This publication of the South Australian government on coal perspectives indicates in the illustration under the heading of "Lake Phillipson Deposit" (see below) that at least in the more western parts of the deposit there are some muli-layer seams.

Cascade deal stinks, dilutes technology leverage of BCB-technology

While the management is doing "feasibility work" for the tiny 0.25Mtpa-module to be constructed in Kentucky since September 14th and keeps delaying its decision even until at least "early 2011", due diligence for the potential Cascade takeover worth A$486m will obviously be done pretty fast (in just three weeks) - especially against the background that those WEC managers not holding a share in Cascade (and so perhaps being neutral), did not have access to any information on Cascade until the announcement. Also given the fact that the Cascade deposit was acquired for just A$1m about a year ago, this offer requires some very thorough review in my eyes.
Why are they in such a hurry to decide even on Christmas Eve allthough the obligatory EGM will not take place before March?
Travers, Brian and all the three Johns control Cascade by holding 60.1% - couldn't they obtain some more time so whoever will provide the fairness opinion for this deal could work thoroughly (especially now that we approach Christmas time implying staff shortage)?
Is there any other interested party? If so how much are they ready to spend?

Kepco have bought an adjacent tenement at Mount Penny with indicated and inferred resources of 420Mt of low-ash thermal coal for only A$ 403m in July (http://www.theaustralian.com.au/bus...to-nsw-coalmines/story-e6frg8zx-1225888239982). Why should WEC pay even more for a smaller deposit?

And why does the WEC announcement not mention the resource target of ~500Mt for Cascade, to which Southern Cross are refering in their recent analyst report?

Even if there existed some inferred 500Mt the EV/t of $1.00/t still seems very high given the uncertainty of the actual deposit volume and the ecological opposition against mining at Mount Penny, which may obstruct development of the proposed four further mines on the tenement and that price would still exceed the EV/t of actually operating mines like WHC.

Why doesn't the company just invest in their engineering force instead and get Tabang finally running at full capacity?
What are the synergies for WEC of owning and mining a high rank coal deposit? Disversification is not a valid argument in my eyes - if shareholders want to diversify they can individually buy a cheaper play.
Why don't they just buy another low rank deposit?

The Cascade deal dilutes the technology leverage of BCB and beyond that it just stinks, which is not only my own opinon: http://www.theage.com.au/business/isoft-chief-goes-in-hard-with-the-apologies-20101130-18ffm.html (see paragraph "White's tough sell")

I'm really interested in the justification that will be given by the fairness opinion on why Cascade's deposit is worth more than actually operating mines like WHC. But as you might know, all fairness opinions are fair, but some fairness opinions.

The apparently excessive pricing of the Cascade offer, the big hurry and the lack of transparency of the whole deal shakes confidence in the management and the company as a whole.
Based on the current information I really hope the planned Cascade acquisition will be dismissed at the EGM in March.

Re: Cascade deal stinks, dilutes technology leverage of BCB-technology

It should say "But as you might know, all fairness opinions are fair, but some fairness opinions are fairer than others."

Re: Cascade deal stinks, dilutes technology leverage of BCB-technology

Inquisitor said:

It should say "But as you might know, all fairness opinions are fair, but some fairness opinions are fairer than others."

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The famous five; Messrs Flannery, Duncan, Atkinson, Kinghorn and McGuigan should put these two tenements out to tender and see what a fair market price will bring.

$500 million looks a very high price indeed and what would be expected to be paid for two mines with all its infrastructure in position and full shipping rights for coal in place; also producing and shipping coal already.

If Cascade Coal is worth so much then why not float it on the ASX ?????????? Difficult to shift with $41 million debts and who is going to put their hands in their pockets for all the cash raising.

Good try famous 5 but please get real; no one else is going to buy these tenements for $500 million.

Rumor says The Felix 5 have received an external offer for Cascade and caring as they are they gave a preferred option to WEC - at a discounted price I guess.
Probably we will never get to know who this ominous bidder is or even how much he bade. Was it the innocent Hans Mende?

Inquisitor said:

Rumor says The Felix 5 have received an external offer for Cascade and caring as they are they gave a preferred option to WEC - at a discounted price I guess.
Probably we will never get to know who this ominous bidder is or even how much he bade. Was it the innocent Hans Mende?

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Interesting! Remembering that Felix Resources was sold for about $3.3 billion with all infrastucture in place, 4 producing mines set to ramp up to 18mtpa (11.5mtpa thermal coal, 3mtpa PCI coal and 3.5mtpa semi-soft coke) plus two additional tenements with 560 million tonnes of thermal coal and over 100 million tonnes of PCI coal. Mr Flannery thought this was an excellent price and thanked the Chinese.
I think a price for Cascade coal should be set at $250 million tops. Mr Flannery would still get about $30.5 million, so he wont starve.

Be fair Mr Flannery and the other four, don't be greedy, accept $250 million!

Cascade CAPEX to amount to $400m for first mine

On Monday MPCP, a Cascade subsidiary, published their application (see below) for the first mine on the Mount Penny tenement, WEC intends to acquire, in the Mudgee Guardian.


The application mentions "up to $400 million in capital expenditure to establish the project" - only for the first of four planned mines on the tenement. After debt repayment of $42m in favour of Cascade's creditors and transcation costs, WEC would be left with less than $60m of cash, from which they would have to fund those $400m for Cascade in addition to the development of the EL4536 tenement (SACL). Even in case of high debt financing a further capital increase would be inevitable, driving the already strong dillution by the acquisition of Cascade even more. At the bottom line acquisiton of Cascade ($486m) and development of the first mine ($400m) would cost almost $900m.

Assuming an optimistic OPEX-level of ~$60/t (FOB), coal price going up to $ 140/t and an initial production capacity of 3.5-4Mtpa from 2013, potential gross profit should range between $ 280m-320m p.a. Production commence and CAPEX for the other three potential mines at Mount Penny are unkown so far, however it seems ROC will amount to a fraction of what the BCB-business promises.

Hopefully Hans Mende will dismiss takeover plans for Cascade on Friday.

In order to compare the price for Cascade with actually producing peer group companies you need to add those $400m, which MPCP state in their newspaper publication from Monday. Then the total effective price for making Cascade produce will amount to $5.10/t and that takes only into account the investments required for the first of four mines, which will produce 3.5-4Mtpa.



Cascade is way more expensive than operating mines like WHC or MCC, despite of all the incertainties including the lack of infrastructure, permissions, shipping rights etc.

Even if the other three mines were included in the $400m of required CAPEX, Cascade remains astronomically expensive.

Hi All, I have just eceived a cheque from computershare together with correspondance which says that all my shares and options have been sold as i am an ineligible foreign share holder. I live in the UK and opted to retain all my WEC performance shares etc. Can any one comment as to why I am now not entitled to be a share holder. This is the first correspondance I have received since I was originally told that I had been accepted at the initial take over of SAC. Thanks

rhip said:

Hi All, I have just eceived a cheque from computershare together with correspondance which says that all my shares and options have been sold as i am an ineligible foreign share holder. I live in the UK and opted to retain all my WEC performance shares etc. Can any one comment as to why I am now not entitled to be a share holder. This is the first correspondance I have received since I was originally told that I had been accepted at the initial take over of SAC. Thanks

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Hi rhip, I have contacted WEC on this particular matter as I have read about problems concerning foreign shareholders once holders of South Australian Coal Limited SAC.
Here is the situation presented as you may come under a situation you have not mentioned:
SAC shareholders were all Issuer Sponsored shareholders because the company was a private company [not quoted on the ASX] and shares were held by everyone in their own name and resident address. (Some shares were held through family trusts and private pension funds where a different situation would apply, particularly if they were held in a foreign pension fund or trust and at the address of the company holding the shares.)

Some foreign holdings remained with a broker because SAC was floated by Felix Resources ASX:FLX in 2009 as a private company. Each share in FLX represented one share in SAC.

All WEC shares issued - including performance shares 2010 and 2011 - where an election for shares was made rather than for cash, were in Issuer Sponsored form.
WEC share holdings were therefore sent 'Issuer Sponsored' to all holders of shares, where the holder had stated that they may be held in accordance with their particular domain. This was left to the applicant to check that this was legal in all respects.

Those issued shares were further entitled to apply for more shares in WEC UNDER THE TAKEOVER BID TERMS - NOT A RIGHTS ISSUE or PLACING, at $2.50 a share. These were all issued as 'Issuer Sponsored' holdings.

Hi Noirua,Thanks for the reply. I have held these since the auiron days and duly receieved my computrshare share certificated numbers for trading..... never sold any. Everything seemed fine following the take over of Felix through SAC and then WEC. With WEC I opted for the shares but did not take up the placings. All the shares have been held in a single name and as far as I know I was originally accepted as an issuer sponsored share holder.
My point now is have I got to accept my fate and cash the cheque or is there any other course open to me.
Once again thanks for your time. I have followed your posts for many years and would credit you for making me a considerable sum.