Dear fellow shareholders,
It is now more than a month since I was appointed Managing Director of your company. During this period, we’ve continued on the strategic path toward Coldry demonstration that commenced with the Design for Tender (DFT) in November 2011.
As you are aware we’ve also been subject to stringent confidentiality provisions stemming from our application to the Advanced Lignite Demonstration Program (ALDP). This has resulted in significantly less communications, and we’ve been deliberately measured in this update to ensure we comply with the probity requirements and government guidance.
This newsletter and the video update below do not have anything market sensitive to disclose, hence it has not been released via the ASX. Rather it is an update to reinforce or clarify where we stand in relation to matters already in the public domain.
With this in mind, and before I cover off our major activities, I’d like to take a moment to re-introduce myself to you.
I am a Chartered Chemical Engineer, graduating from the University of Melbourne. Following University, I moved into the Process and Chemical industry with Cabot Corporation via their Australian subsidiary at Altona here in Melbourne. I spent 20 years with Cabot, holding a diversity of roles across plant operations and management; engineering, design, construction and commissioning, as well as positions in quality and systems management and marketing.
During this time, I was part of various teams that designed, built and brought to successful commercial operating status ten production units in Asia, with a combined budget of several hundred million dollars.
I was engineering lead or commissioning lead on five of these projects. In my last few years at Cabot, I held roles responsible for technical application support and marketing for the major business segment supplying the tyre manufacturing industry in Asia Pacific. During my time at Cabot, I spent many years overseas in the USA, UK, Japan, Indonesia and Malaysia.
Following Cabot, I moved to Delta EMD, a South African specialty chemical business supplying electrolytic manganese dioxide, where I was responsible for all commercial aspects of the company’s global sales and supply chain. In my time in that business, I was part of an Executive Management Team that drove and delivered a business turnaround, returning it to profit by overcoming major structural changes to the global industry that had led to widespread loss-making operations over preceding years.
This diverse set of experiences gained in my years prior to joining ECT provides the skill set required to drive and deliver the various project components needed to commercialise Coldry, including:
- Process engineering strength, especially process design and optimisation
- Planning for new organisations; recruitment, training, commissioning and startup operations
- Competitive analysis and technology assessments
- Commodity market supply and demand analysis and planning
However, this is not a one-man show. Commercialising a new process is a team effort. It takes the support of our investors, the expertise of our strategic partners and considerable dedication and effort by ECT staff.
As such, I look forward to profiling the full ECT team and our strategic partners in future newsletters.
I trust you find the following updates informative and welcome any feedback via email – [email protected].
Key Objective – Coldry Demonstration
Our key objective is to demonstrate Coldry at a commercial scale to enable the broader global commercial uptake and roll-out of the technology, and the Coldry Demonstration Plant (CDP) project is how we intend to do this.
With this key objective in mind, we’re on track to begin the final stages of preparation ahead of construction commencement targeted for H1 2014.
Included in these activities are:
- Final site confirmation within the Loy Yang precinct
- Transition from MoU to formal detailed agreements with AGL Loy Yang for the site, coal supply, electrical supply and waste energy interconnections
- Construction package tender issue and final selection of vendors
- Project approvals, including planning permits and required EPA approvals
The commercialisation process is extremely detailed, always challenging and requires a staged increase in capital on the way through. Our efforts over the last 18 months have been significantly focused on de-risking all aspects of this program:
- Our work with Arup has delivered a great design, which we’re now finalising along with targeted “value-engineering” driven cost-reduction efforts.
- Our efforts through the Government’s ALDP process have also been significant. If successful, this grant funding will significantly benefit our speed to market, given the substantial capital requirements to demonstrate Coldry at commercial scale.
- The progress made by Monash to deliver funding into the CDP has been substantial and the Board continues to work closely with them.
We are focused on delivering shareholder value through the achievement of this key objective; Coldry demonstration. This is not without risk and as such the Board continually reviews the strategic and operational aspects of the business in line with its obligations.
CDP Engineering Update
Since February 2013, when the Company advised the market that Arup had largely completed the earlier scoped Design for Tender (DFT) process, engineering work has continued with an emphasis on preparation to deliver the demonstration project. Specifically, that means:
Estimation: In collaboration with McConnell Dowell (MacDow), Arup have prepared initial project cost estimations for the Coldry Demonstration Plant (CDP) based on a ‘generic site’ within the Loy Yang precinct.
Value engineering: With the detail available from the estimate, a prioritised list of opportunities to reduce capital cost has been developed. Progress continues in this area, with a few examples resulting in reduced capital estimates being;
- Reduced structural requirements through enhanced equipment layout
- A modified conditioning belt conveyor structure, reducing the need for complicated pipe and duct systems for air distribution, and; Simplification of pipe and duct systems stemming from design improvements to the conditioning belt conveyor structure
- A creative solution for distribution conveyors on top of the Packed Bed Dryer structure, eliminating an entire “tripper” conveyor
Project Planning: Detailed planning is well advanced for the balance of the pre-construction engineering works, as well as initial construction programs.
Project Approvals: Permit and Approval requirements have been identified, and preparatory works have begun, including initial site-specific inspections and reports.
Product transportability: Further detailed studies have been completed, confirming the low tendency for spontaneous combustion of Coldry vs. other regularly transported coals providing confirmation of suitability for bulk handling.
Arup have commenced the second round of project estimation works, which will include significantly more detail related to site works, and incorporate the outcomes of the value engineering activities performed to date.
The Advanced Lignite Demonstration Program (ALDP) is a joint state and federal government funding initiative designed to support pre-commercial demonstration of coal upgrading processes for raw lignite.
The ALDP includes probity and confidentiality requirements that limit disclosure unless approved by the government. To comply with these provisions your company has had to restrict the usual level of communication, providing only material updates per ASX listing rules. We understand that while most shareholders would prefer more regular updates, you also recognise the need to comply with the program to ensure continued eligibility.
As outlined on the ALDP website, the next step in the program involves confidential funding offers to preferred applicants. Following the issue of offers, the government has indicated a funding negotiation window of up to 3 months, after which the Ministers will announce successful applicants.
Shareholders should be aware that this timeframe is indicative and could change without notice at the government’s discretion.
If ECT receives an offer to enter funding negotiations, it cannot announce this without breaching the confidentiality requirements of the program, and it is non-binding at that stage.
Should ECT be successful in receiving funding, an announcement will be made immediately following the Ministers announcement, which is standard protocol and consistent with ASX continuous disclosure requirements.
If ECT does not attract an offer, an announcement will be made immediately and an alternate pathway outlined.
Monash Capital Group equity placement status
Monash continues to advance, and ECT continue to support, its capital raising program with the intent of delivering the $6 million equity investment in addition to significant funding into the Coldry Demonstration Plant.
It is important for shareholders to recognise that the $6m equity placement, while important in establishing Monash as a cornerstone investor, is not the end game. The driver behind our work with Monash is to attract the significant risk capital to the demonstration project.
Based on the information at hand, we believe that:
- Monash’s capital raising program can deliver the equity funding commitments to the Company
- The required capital can be delivered into the Coldry Demonstration Plant (CDP) project in line with projected timeframes
- The funding offered by Monash represents the best available value to shareholders
The Board is sensitive to the short-term impact the delays have on investor sentiment and the desire for information as to the nature and cause of the delays.
To this end Monash advises the delays are systemic and due to the size and complexity of the funding programs. However, they have highlighted the upside to this type of program: flexibility. This flexibility provides Monash the capability to deliver significant capital to a broad range of projects, including our key objective – the Coldry Demonstration Project.
Monash Director Neil Youren explains further:
“ECT is not the only project targeted to receive investment from Monash.
The fundraising programs we are using are non-traditional in Australia, though are more common in Europe and North America.
We source our funding through programs that we have access to in the offshore capital markets. These are customised, structured programs that utilise funds sourced specifically for projects that meet specific criteria.
Monash’s business model in this space can be summed up as a strategic investor in large-scale infrastructure and energy projects, via the provision of both debt and equity. We also seek to gain upside from careful selection of, and investment in, companies along the supply chain.”
While we appreciate the work undertaken by Monash is subject to the processes and timing of the markets in which they operate, shareholders have made their preference clear and are keen to hear one message; the funds have been delivered. In line with this ECT will focus future Monash-related updates on such material events.
CDP capital raising participation for existing shareholders
Many shareholders have flagged their interest in participating in any capital raising opportunities aimed at funding the demonstration plant.
As such the Board is reviewing various options for participation and will advise shareholders of these opportunities in due course.
Video Interview with ECT Managing Director Ashley Moore
The following video does not contain any market-sensitive information. It provides general commentary on topics already in the public domain.