2012 Annual Report to Shareholders
2012 has been another demanding year for the Company. Despite the challenges facing the Board and Management, we believe that substantive progress has been achieved in a number of important areas.
Design for Tender
Phase 1 of the Design For Tender (DFT) work being conducted by Arup was completed on time and on budget. As a result of the Phase 1 work being completed, ECT now has the full engineering detail around the Coldry process technology and process equipment. Phases 2 and 3 will deliver the civil, structural and services engineering detail such that quotations for construction of both the 2 million tonne per annum (mtpa) commercial-scale plant and the proposed 167,000 tpa Commercial Demonstration Plant can be sought. Phase 3 is expected to be completed by year end, subject to the timing of current capital raising activities.
In March 2012, Monash Capital Group agreed to subscribe for 300 million ordinary shares at 1.33 cents each and 300 million ESIO options for a total consideration of $4.0m. Furthermore, Monash pledged to assist with funding of ECT projects including the construction of the Coldry Commercial Demonstration Plant and Matmor pilot plant.
Monash was not able to provide the full settlement monies for the share placement within the timeframe agreed, however on 26 July 2012 it subscribed for $500,000 of the $4 million committment. Monash subsequently reaffired its committment o ECT and undertook to subscribe for an additional 300 million ordinary shares as 2.0 cents per share plus 300 million listed options (ESIO) for nil consideration to provide funding of $6.0 million.
As at the date of writing this report, Monash has not delivered any further settlement monies however it has provided an indicative timetable to commence the delivery of outstanding monies. This was contained in a letter dated 9th October 2012. Further announcements will be made on this topic in due course.
The Board fully appreciates the concern and anxiety expressed by Shareholders over recent months regarding the delayed settlement by Monash. Whilst Stephen Carter as sub-committee Chair has had the lead role in communicating with Monash over this period, all Directors have been in regular contact with Neil Youren and other Monash personnel to satisfy themselves of Monash’s genuineness and capability to settle the transaction.
The Board’s continued support for the Monash funding is multi-faceted: one of the key attractions of the Monash offer is the potential for the provision of project funds, over and above the $6.0 million placement, in support of both the delivery of the Coldry Demonstration Plant and the further development of Matmor to pilot scale. These programs will require significant funding and considering the volatility in domestic and global capital markets, the Board is of the view that the Monash offer holds strategic value beyond the initial $6.0 million investment.
Coal Allocation Process
In a positive demonstration of support for the Victorian mining industry, in March 2012, the Victorian government announced it would begin a process to open up new allocations of brown coal within the State’s vast reserves of this resource. Whilst details of any allocation process are yet to be advised, the government has stated that it wants the economic potential of the Victorian brown coal resource to be liberated in a sustainable manner and it will support companies which bring technologies that add value to this otherwise low value resource. Technologies such as coal gasification and the production of synthetic diesel, chars, tar and chemicals from brown coal will be encouraged as they add the greatest value to the resource. Generally, these secondary or tertiary process technologies cannot efficiently or economically process high-moisture raw brown coal directly and ECT sees enormous potential in providing Coldry as a feedstock to these industries.
In May 2012, ECT announced that it had entered into an agreement to secure an interest in a coal exploration licence within the Latrobe Valley identified as EL5119. Under this agreement, ECT will meet the costs of development work required to prove up the reserves of lignite to JORC measured reserve status. On completion of this development work, ECT will become the beneficial owner of a minimum of 90% of the coal delineated within EL5119. In discussion with potential partners in the development of Coldry plants in Victoria it became evident that, by having access to its own coal resource, ECT was viewed very positively and was seen to be more self-sufficient.
Advanced Lignite Demonstration Program (ALDP)
Again, in a very positive move for the brown coal industry, in August 2012, the Victorian and Federal governments jointly announced the Advanced Lignite Demonstration Program (ALDP). This program will provide financial assistance in the form of grants to selected companies, which intend to commercialise lignite up-grading technologies through the construction and operation of commercial demonstration facilities. ECT will apply for funding under this program. Expressions of Interest close on 19th November 2012.
Thermal Coal Market Conditions
The market for thermal coal, which is the market Coldry will be sold into, started the year with a continuation of strong demand from previous years, particularly from Asia, however by late in the year demand had subsided and spot prices reduced to levels not seen since 2010. These comparatively low thermal coal prices put enormous pressure on the higher cost coal mining companies, both domestically and overseas, to the extent that numerous miners curtailed production and some closed their operations.
Lower coal prices have put a renewed focus on production costs and we have accordingly added extra emphasis within the DFT program to optimise the Coldry process and equipment performance to minimise production costs. As such we remain confident in Coldry’s commercial prospects.
In respect of Matmor, I am pleased to report that numerous Matmor trials were conducted during the year using a range of lignites from various countries and a variety of iron-bearing materials, including waste streams such as nickel refinery tailings and mill-scale from steel mills. It is very significant that Matmor technology is now proven, at test plant scale, to be capable of producing quality primary iron from a variety of iron-bearing materials and lignites.
Research and development to date indicates Matmor technology has the potential to substantially reduce the raw material costs of iron and steel making. It achieves this by addressing the two key inputs in iron making; traditional blast furnace iron making relies typically on coking coal as the reductant and typically high grade lump hematite as the iron oxide source. Matmor has the potential to greatly widen the raw materials available to iron making by using lignites in place of expensive coking coal, and substituting high grade iron ore with lower cost ores or iron bearing waste streams.
The Year Ahead
During the 2012/13-year, we are committed to:
- Completion of Phases 2 and 3 of the Design For Tender Program.
- Development and submission of a solid application for government funding assistance under the Advanced Lignite Demonstration Program (ALDP).
- Complete all of the pre-construction work required to proceed with construction of the Coldry Commercial Demonstration Plant such that building works can commence immediately after the awarding of ALDP funding in the second half of 2013.
- Assembling a consortium of companies, each with a lignite value-adding technology, to successfully tender for large coal allocations within the Latrobe Valley.
- The development of commercial agreements, which will follow from and be conditional upon, proving the feasibility of Coldry production at commercial-scale at the Commercial Demonstration Plant.
- Managing an effective and efficient capital raising program, with minimum shareholder dilution, such that all capital requirements are met and expenses are provided for.
I wish to acknowledge the ongoing support and loyalty of our shareholders, which we know has been severely tested due to the delayed settlement by Monash.
Also I want to recognise the contributions made by fellow directors. Ashley Moore has done an outstanding job in overseeing the further development of the Coldry technology through completion of Phase 1 of the Design For Tender Program. Also Ashley has been key to the development of strong relationships with Indian and Chinese prospects for commercialisation of Coldry and Matmor technologies in those countries. India and China remain very important target markets for both Coldry and Matmor and his relationships in these regions will be critical to the Company’s success there.
Stephen Carter has worked tirelessly to deliver on the Company’s capital raising plan and capital management plan. His management of the exit of La Jolla, various interim capital raisings, settlement of EL5119 and his deep involvement in the Monash share placement negotiations and transaction was necessary to achieve the outcome the Company required.
Also Iain McEwin’s ongoing assistance in participating in investor forums and his work with shareholders and potential investors should be acknowledged.
The Operations Management team, lead by Ashley Moore, has done a superb job of refining and improving both the Coldry and Matmor production processes and collaborating with our technology partners to optimise production plant design. Also they have been excellent hosts to the many visitors we have had to the Bacchus Marsh facility.
I have received some feedback on elements of our Remuneration Report for 2012. I can assure all Shareholders that work completed by all Directors and Management has been of the highest standard and at rates that are heavily discounted from those that outside consultants would charge. ECT’s agenda is considerable and Directors and Management are working diligently to complete all agenda items with professionalism and efficiency. I believe that the Board and Management are working very well together to advance the Company’s business.
The Company’s mission for the coming year is quite simple – secure investor support from the resources/energy sector in the Coldry Commercial Demonstration Plant and complete the preparatory work required to commence construction of this plant in H2 2013 after the announcement of ALDP funding.
Download the full Annual Report here (PDF - size 8MB): Annual Report 2012