ECT managing Director Ashley Moore today trialled a Q&A session with investors via the popular internet stock forum Hot Copper (HC).
The call for questions was posted to HC yesterday (Wednesday 8 June 2016), with a range of questions quickly added to the thread by various forum members.
Clear themes emerged and were grouped into topics in an effort to minimise repetition and avoid the inevitable piece-meal approach that a live, post-for-post Q&A could entail.
Ashley commented, “The risk of engaging via an anonymous forum like HC is that it can attract trolling, flaming and baiting. And while there were some wayward posts, several investors took the time to phone or email us following the session to convey their appreciation.”
The Company provided a guiding statement at the beginning of the session, thanking participants for their involvement and providing a reminder that sensitive information would not be provided and respectful engagement would be enforced.
The positive feedback has encouraged us to keep this channel open for future Q&A sessions.
Below is the link to the forum thread (for those who are members) and transcript (for those non-members).
LINK: http://hotcopper.com.au/threads/q-a-with-ect.2787971/#.V1ktTo9OJ3j (opens in a new tab).
Firstly, I’d like to thank forum participants for their questions and make a few general comments before diving into some specific responses.
This Q&A is intended to help provide clarification on information already in the public domain. Clearly there are some questions being asked that cross the line in terms of commercial-in-confidence information or incomplete transactions. And while the level of interest in certain topics is totally understandable, to answer those questions would be inappropriate.
Some of those questions seek a level of information only appropriate for Directors. So let me touch on an important concept for shareholders of any public company. The Directors are your representatives. They act on behalf of all shareholders. Their role is to sit inside the tent and make reasonable decisions based on the information at hand, with the guiding principle of long term shareholder interest at the core of those considerations. Shareholders can’t be privy to certain things, otherwise they’d be in possession of inside knowledge which would prevent them from trading the Company’s securities.
Further, it’s not in the best interests of shareholders for the Company to disclose certain contractual terms. To do so could give away certain competitive advantages, breach confidentiality provisions or weaken negotiation positions. What we can communicate are the objectives of an agreement and how they fit with the strategic plan.
So, with that in mind, lets answer some questions.
We’ve taken the questions posted, grouped them where sensible, and provided some answers. We’ll post these individually, and can then move to a more interactive mode.
We’re aiming to keep this session finite in terms of time, and will wrap up by 1pm or shortly thereafter. If this is received well by shareholders and other important stakeholders, then we will consider repeating this approach again into the future. Your feedback will be appreciated, directed to: [email protected]
Why this forum?
Q: Any reason why doing Q&A on HotCopper? ESI is an ASX listed company and would it not be every shareholder’s right to have visibility of such sessions?
A: We will not be providing anything sensitive that hasn’t already been disclosed via the ASX. Whatever channels or forums we choose to communicate with shareholder’s and the market will be to the exclusion of somebody but given we have a lot of active discussion on HotCopper about our company we have chosen to hold a Q&A session via this service. The barriers for anybody to access HotCopper is relatively low so we believe that it is not restrictive and relatively free and open.
That said, we will be transcribing this Q&A, and posting on our website.
Q: Royalties? Is it still $5 (per tonne).
A: It is not always in the company’s interest to disclose publicly all details of our pricing. Sufficed to say, these will become evident very shortly. The $5 per tonne reference was related to Coldry and something expressed prior to 2012. The integration of both Coldry and Matmor (as we have with the Indian project) necessitates a different approach to both quantum and structure.
Q: It was previously stated from memory that ECT had been approached by a number of parties interested in being involved in the Indian project funding. Is this still the case? It was also stated that ECT had available to it funding for around $30mil. Is this still the case?
A: We have access to a vast number of funding options for our project. Our challenge is to optimize our terms of finance and we will do that through de-risking the project by undertaking things such as the TEF.
Q: Could Yes Bank be involved in funding?
A: Yes, but we need to develop a project plan commensurate with their project financing requirements.
Q: What are the terms with Brevet Capital? Announcement states they are ‘competitive’.
A: ECT is currently seeking debt finance offers for future funding. To that end, we took the approach to not provide the finance market with an indication of price on prior debt. The full details of this debt will always be disclosed in the statutory reports.
Q: What options are being considered to fund India? Are you only considering Brevet or other providers? If others, then who? Have discussions been revisited with Monash?
A: Brevet is in the mix, as are other providers. We also have A&B options conversions, and a range of other equity & debt. NLC and NMDC will also contribute to the project.
Q: How’s the search for a cornerstone investor going? Lots of searching, but seems no one is committal just yet.
A: Given the relationship we are building with our partners in India, NLC and NMDC, we are not actively seeking cornerstone investors, although we are open to offers for discussion in this regard.
Q: Can Yes Bank or Greenard sell $1m in shares at anytime or are they escrowed?
A: YES Bank or Greenard do not own $1M in shares.
Q: What is the current state of affairs in relation to getting the R and D ruling? Are they able to put a timeframe on when a decision will be reached?
A: The assessment process with AusIndustry continues, and has not reached its conclusion. We are active in discussions, and continue to provide responses to their assessment questions. We will provide further information following conclusion of the process. To provide more details at this stage would not be appropriate.
Q: The company previously released an Arrowhead report which in part had projected valuations for ESI based on a DCF analysis. Please confirm that Arrowhead are not privy to any funding arrangements that are not market known.
A: Arrowhead were provided publicly available information, along with general descriptions of ECT’s intended business model to realise value from projects developed. They used their industry and country specific expertise to form assumptions from there, many of which were clearly outlined in their report. Their valuation process is their IP – so, they naturally hold some of that in confidence.
Q: In your opinion, what would be the time frame for agreements to be signed for funding and go ahead of project and for it to be secured and announced to the ASX?
A: We will have more certainty of this after the TEF, as this is the next major gateway for progress on the Indian project.
Q: Why doesn’t the company spend more time and effort on PR to help bolster the share price and what plans if any do you have in this regard going forward?
A: Clearly PR doesn’t come for free. We’ve chosen to prioritise our spending very carefully, and use it primarily for project development and engineering activities. We are re-assessing our decisions, and reviewing where that balance is struck. That said, what Australian media elects to report upon isn’t easy to influence. This activity today is part of our additional effort in this space. However, it is an over-simplification to think that PR trumps engineering in creating value for our shareholders!
Q: Has there been any sort of PR to broker firms?
A: We intend to develop a refreshed corporate presentation after June 30 which will reflect the TEF and the company’s Strategic Plan. This will give us the key marketing collateral for engaging brokers and the investment community.
Q: Can you explain the reason behind Neil Pollock’s directorship appointment to ECT India? Was it simply a matter of convenience based upon a personal relationship or a synergy that may play out in future years and is yet to be disclosed?
A: This is in compliance with Indian company law. ECT required an Indian Resident Director. Neil was an appropriate choice at the time, being well known to the Company. Future ECT India Board structure will be aligned to its activities as they develop.
Q: We can view publicly filed information regarding ECT India. Do you envisage any further directorship appointments to ECT India in the next 6 months?
A: All future decisions for directors will be made on a ‘needs’ basis. We are satisfied with the current composition.
Matmor R&D activities
Q: What is Keith Henley-Smith working on at the moment? Is he working on developments in India or other? Does ECT have plans to own the IP for alloy PAK450 at some point in the future?
A: Keith works on Matmor development and his work is instrumental in supporting the Indian project. This invariably requires him to visit India in support of this project. PAK450 is something Keith had been working on prior to his involvement at ECT. ECT’s strategy is to consider developing and or acquiring technology and IP where it aligns with our strategic direction and as yet, given our focus on Matmor and Coldry, we have yet to fully consider PAK450.
Q: What is the status of new Matmor IP? It’s been sometime since that update.
A: ECT is developing new IP all the time. The particular “discoveries” we reported on continue to be explored, and we have also begun investigations into patent filings elsewhere in the world which have been issued in the same area of investigation, and believe there continues to be opportunity for new patent filings. We cannot provide any comment on the status of these new discoveries with respect to design activities underway as this may impinge on potential future filings.
Q: What’s happening in Australia – What moves are underway to substitute brown coal in Victoria’s base load power stations with ESI’s ‘cleaner’ coal technology? Is this getting the appropriate consideration by the Federal & State Governments? If not why not?
A: As already announced, ECT is developing an opportunity which would establish capability to supply auxiliary fuel for startup of power stations, and also provide for main fuel for smaller heating units scattered throughout Victoria where economic alternatives are not available. We continue to assess expanded opportunity to increase efficiency of baseload generation. We expect that successful demonstration of Coldry’s capabilities via our Indian project will enhance our prospects on that front.
Q: What’s the status of the May update regarding Bacchus March?
A: Stage 1 upgrades are likely to be concluded this month and commencement of stage 2 will be considered prior to the end of June.
Q: Can you please provide details of the opportunities ( tonnes) that exist for the use of Coldry in the local market since the closure of Energy Bricks.
A: Two main users account for the bulk – around 40-50 thousand tonnes per year. Smaller customers, less easy to categorise and count add up to perhaps as much as another 10 thousand tonnes.
Q: What is the status of ‘start up’ fuel discussions?
A: The company is currently under confidentiality relating to a number of boiler trials.
TEF and India Project
Q: I read the TEF is to cover a 500,000 tonnes integrated steel plant, but that’s not what you intend to build first. Can you please advise why this is the case?
Under the Tripartite Collaboration Agreement the parties are working toward the ultimate objective of commercial deployment for both Coldry and Matmor. As previously announced, the Coldry demonstration has been scoped to an appropriate level, providing acceptable capex and opex estimates. Matmor is a stage of development behind Coldry, so the TEF is aimed at delivering an appropriate project estimate to help narrow down the scope of investment expected to be required to move through R&D to commercialisation. This also provides a snap shot of the potential commercial outcomes, to underpin the decision making process by our Indian partners around allocation of R&D funding, satisfying their internal funding allocation requirements.
Both YES Bank and GWI received $20,000 in consulting fees for meeting the TPA milestone and they will continue to receive bonuses related to future milestones. One of the future milestones is ‘the signing of a binding construction contract’. My questions are (1) in what material ways will the construction contract’s binding status differ from the TPA’s binding status; and (2) will the binding construction contract provide details of the capital structure and related financial details only for the integrated pilot scale plant?
A: Material differences – That its focused on the plant construction, as a specific item, as opposed to the overall project. Yes, those agreements will contain very specific capital, legal, commercial and transaction structure details.
Q: Will NPV and IRR figures for Matmor be announced post TEF study?
A: We expect that certain values will be outlined upon completion of the TEF and this will be done in co-operation with our partners, NLC and NMDC, on the project.
Q: In your opinion, are the reps from NLC & NMDC as optimistic as ECT management?
A: ECT has stated several times that our partners remain keen to proceed with the project. That stance is unchanged as we collectively go through the TEF. The management at NLC have made this a very high priority project, and are very active in support.
Q: If all things go ahead as planned Is or Would a dual listing ASX / India Exchange be considered?
A: That is not something we’ve considered at the moment. The Indian listing rules are very different to those in Australia, and we’re fully engaged in our activities on the project development at the moment, with full utilisation of our internal resources. That said, we wouldn’t rule these types of consideration in or out until we were more fully informed.
Q: Re the current design phase and TEF works being undertaken by all interested parties – who is picking up the cheque for this process.
A: ECT has engaged MN Dastur for the works in support of the TEF. That is important, since all IP developed from this work is then unequivocally the property of ECT, and can be used on any other ECT projects. The Dastur work is part of the TEF package, the balance of which is largely being executed by ECT resources, in collaboration with NLC and NMDC. Please note prior ASX announcements regarding the Working Group meetings.
Q: TEF gets submitted to the NLC/ NMDC boards late June /August; have they given the company any idea of when they will return with a decision?
A: We know there will be a review process, and it will be managed differently by each company. We expect it will be simpler than all prior experiences.
Q: Integrated Coldry / Matmor plant… What’s the intended output on the Matmor pilot?
A: We’re aiming for ~1-2 tph hot metal. Precise decisions don’t need to be made yet.
Q: Has there being any interest on a standalone Coldry plant anywhere overseas for power generation purposes only (apart from the Victorian fuel supply opportunities and not linked up with Matmor)
A: Interest in Coldry from parties outside of India has previously been established with the common hurdle to advancing a project being demonstration. Most prospects are set up to mine coal and / or generate electricity and don’t have a mandate to invest in pre-demonstration technologies. The successful demonstration on Coldry in India will be a key selling tool for the broader market.
Company Policy and related matters
Q: When and how can Directors trade options/shares?
A: Restricted and in accordance with the ASX listing rules and the company’s Share Trading Policy
Q: Did Glen Fozard receive bonus incentive options or shares when the share price hit an intraday high of 3.5c in January 2016.
Q: Has there been any material change in the composition of the top 40 Option A and Option B holders over the last 6 months?
A: As already reported, Maddingley Brown Coal have converted a significant number of their B options into FPOs. There have been a range of other conversions as well, but these don’t materially change the makeup of the top 40. The top list will be published in the financial accounts and annual report.
And for a late entry question:
Q: Based on production numbers and testing. Using our technology, how much money potentially can our technology save our partners in the tripartite agreement? Are they aware of those numbers and are they excited by it?
A: This is precisely what the TEF is intended to clearly lay out, by developing a study at significant scale (500,000 tpa billet steel – not large by steel industry standards, but big enough to be commercial). Are they excited? Yes, otherwise we wouldn’t be doing this with them. What we’re doing via the TEF is turning that indicative potential which allowed us to commence engagement, and providing a numbers based projection which quantifies the opportunity. This is what Boards need to commit funding to development programs, and ticks an administration / due diligence box.
Quote: “A: Material differences – That its focused on the plant construction, as a specific item, as opposed to the overall project. Yes, those agreements will contain very specific capital, legal, commercial and transaction structure details.”
Q: Is this for the pilot plant only not the commercial plant, right? And the commercial numbers won’t be available until after the pilot scale activities are complete?
A: The construction contract trigger point for the incentive is the contract associated with the Pilot/Demo plant for Matmor & Coldry. That contract will also be part of a longer term arrangement, which articulates through to commercial scale for the integrated plant. That longer term arrangement will include financing arrangements, supply contracts for raw materials and technology licensing. We anticipate performance hurdles will need to be met before progression through to commercial scale, but the structure is set up in readiness for that.
You also make comment regarding the capital cost estimation for the commercial plant. We’re now in the process of developing initial estimates for that as part of the TEF. These will, of course, be improved and refined to incorporate newly developed IP, as well as operating experience and learnings from the Pilot plant.