Hydrogen is a hot topic.
We recently announced our proposed hydrogen hub project for Victoria's Latrobe Valley.
Today, the Latrobe Valley Express picked up our story, providing local coverage of our plans to deliver a net-zero hydrogen refinery.
2 Dec 2021 | Michelle Slater | Latrobe Valley Express
A Melbourne-based company has secured a site to build a net-zero hydrogen refinery at Yallourn to create low emissions hydrogen and agricultural char from lignite.
Environmental Clean Technologies has purchased four hectares on Yallourn Drive on the site of the former Powerhouse Hotel, which would be converted into offices, laboratories and training areas.
Yesterday we updated the market on the completion of the basic design for the Matmor component of our India project.
Investor analysis website 'Proactive Investors' did a good job of summarising our key message.
Environmental Clean Technologies shares rise as project in India progresses
Basic design for the company's lignite-based primary iron making project completed.
Environmental Clean Technologies Ltd’s (ASX:ESI) (ECT) shares are trading about 8% higher intra-day at $0.014 after completing the basic design for the Matmor component of its planned India project.
Matmor is the world’s first lignite-based primary iron making technology capable of replacing metallurgical coal and high-grade lump iron ore with lower-cost alternative raw materials...
Hyderabad, India: ECT India Chairman and Managing Director, Ashley Moore attended the 'Inaugural Function of the Diamond Jubilee Year Celebrations' hosted by NMDC today.
The invitation-only event, which celebrates NMDC's 60th year, was held at the Shilpakala Vedika Convention Centre and included high-level Indian government representatives.
NMDC is the largest iron ore miner in India and the 8th largest globally, mining ~34 million tonnes in 2016-17.
Dear Option holders,
Further to our announcement last Friday (23 June 2017) I'm pleased to announce that a website for ECT Finance Ltd has been set up to take registrations for the Equity Lending Facility ahead of the expected official opening of application mid July.
Please click here - www.ectfinance.com.au - to fill in the registration form.
Option holders who register will attract a 0.25% discount off their interest rate for the first 12 months.
We’re moving office.
We’re not moving very far; only 850m in fact.
Our old office will close at 5 pm Thursday 8 June and we’ll reopen 9 am Tuesday 13 June.
Our new phone number is: +61 3 9849 6203
Our new contact details will be as follows:
388 Punt Road
South Yarra VIC 3141
PO Box 482
South Yarra VCI 341
If you have a matter requiring our urgent attention during the move, please email us at [email protected].
The Federal Budget 2017/2018 was handed down last night by Treasurer Scott Morrison. One of the key features we look for as a business is changes to Innovation Policy, and specifically, any changes to the R&D Tax Incentive program.
Earlier in 2016, the federal government had undertaken a R&D Tax Incentive review overseen by the Chair of Innovation Australia, Bill Ferris, Australia's Chief Scientist Alan Finkel, and Secretary to the Treasury John Fraser.
Last night’s Federal Budget did not include any of the recommended changes.
While we had been anticipating changes, and were prepared for these in the design and implementation of our India Project Financing arrangements and domestic R&D activities, it would now appear that the Government has maintained the status quo.
As such we welcome the continued support for innovative companies. The AusIndustry R&D Tax Incentive rebate is an important scheme underpinning Australia’s development of new businesses and industries.
Importantly, while we will continue to monitor the development of policy in this space, and position our funding programs accordingly, we continue our focus on conducting a series of R&D programs targeting benefits for the Indian project as part of the design enhancement process.
These programs are aimed at completing data sets to drive targeted project outcomes including:
The realisable potential represented by these targeted outcomes will add substantial weight to ongoing planning activities between the Project partners, during the company’s trip to India this month. In addition to ongoing engineering and site development activities, the visit will include status updates on the NITI Aayog review process and establishing an ECT India office.
Our High-Volume Test Facility at Bacchus Marsh was involved in a fire incident yesterday (Sunday 16 April 2017). The incident was attended by the CFA and the cause is currently under Police investigation.
Media reports were overstated and the Company is pleased to report that the fire was isolated and ongoing operations of the plant are not threatened by this event.
The Company was not contacted for a fact-check by the media prior to reports being published, so it’s not surprising that reports that the fire had “engulfed 120 tonnes of Brown Coal” were exaggerated. There was a considerable amount of black smoke which was almost entirely related to the incineration of the rubber conveyor belts and was quickly extinguished by the attending CFA.
Evidence at site shows that the fire is likely to have started from the outside conveyor belt early Sunday morning with it then spreading to the bottom of our product drying hopper, igniting only several tonnes of coal.
ECT Chairman, Glenn Fozard, who attended the site yesterday, said, “I’d like to thank all attending emergency services for their swift and efficient action.”
“I’d especially like to thank our site manager, who was our first staff member to attend and continued to co-ordinate and support the attending emergency service personnel on site and continued with the help of other staff, to work tirelessly into the early evening to ensure the site was safe and ready for the clean-up and repairs.”
The Company believes it is fully insured for events like this and will run the clean-up and repairs in parallel with our continued upgrades of the facility in support of our test regime and sales.
Considering this event, we are also bringing forward our planned security upgrades at the site, including CCTV installation, to enable real-time monitoring of activity within and around the facility.
Should anyone have any information about any suspicious activity between 12am-7am on Sunday 16th of April, we ask that you contact the Company, the investigating Police officer at Bacchus Marsh or Crimestoppers.
The Company released a shareholder update via the ASX on its Bacchus Marsh upgrades and initial sales of Coldry product this morning.
In related news the Australian Energy Market Regulator (AEMO) released a report yesterday highlighting looming east coast gas shortages.
This market backdrop bodes well for the Coldry sales outlook here in Victoria.
Environmental Clean Technologies Limited (ASX: ESI) (ECT or Company) is pleased to provide the following update to shareholders on the upgrade activity at the Company’s Bacchus Marsh R&D facility, on both the Coldry, as well as Matmor technologies.
Coldry Pilot Plant – High Volume Test Facility
The activities undertaken over the last six months are linked to preparations for the Coldry-Matmor Demonstration plant in India. This includes a sub-project supporting the development of a control system algorithm that will be able to automate and optimise process parameters in a complex, multi-variable system.
The test program will also extend to the development of data to better understand how the process and the control algorithm need to react in response to changes in raw coal properties. Changes in moisture, ash and pH occur naturally across a coal seam resulting in sometimes abrupt input changes that require adaptation of process parameters to mitigate impacts on finished product quality and costs.
The implications for the Bacchus Marsh High Volume Test Facility extend beyond the activity aimed at helping prepare for our India project, to the generation of new knowledge to support our design efforts for subsequent applications, such as integrated front-end rapid drying solutions for other coal upgrading processes and improved final product specifications.
On the way through this R&D activity, we’ll be producing up to several thousand tonnes of finished product. Where that product is suitable for sale, we intend to sell it to local customers. There is also an opportunity to test product performance in a range of end-user applications (small boiler systems, large boiler systems, pyrolysis and torrefaction) for batches under 15,000 tonnes.
The Coldry process combines two unique aspects:
Brown coal densification is a natural phenomenon whereby the physical structure of the coal is transformed from a wet, soft, friable raw material to a dense, dry, hard material. It takes a very specific type of processing to apply shear-stress over time to trigger BCD. The primary processing equipment design and operating parameters are tailored to the characteristics of the coal.
The application of the right amount of mechanical shear to the raw coal results in a soft and malleable coal ‘paste’, enabling low pressure extrusion to form pellets. The key here is that the physically trapped moisture is mobilised and, as that moisture migrates to the surface of the pellets and evaporates, the porous structure of the pellet collapses and densifies.
Moisture removal via evaporation may sound easy. Natural moisture removal in the open environment would proceed via evaporation under ambient conditions, but that could take several weeks, making it unpredictable and nearly impossible to schedule production around. It’s not a commercial solution. Controlling the drying rate to a predictable timeframe is essential to developing a commercial scale solution. Generating heat through traditional methods is relatively expensive. This is where the low-temperature waste heat aspect of the Coldry process comes in. BCD proceeds ideally in the range of 40°C to 70°C.
Waste heat is essentially free because there’s no other valuable use for it. Typically, coal power stations waste around two-thirds of the energy content of the coal via system losses. One-third is evaporative loss from the cooling towers. The other third goes up the flue stack. The Coldry process harnesses these waste resource and directs the heat to low-temperature drying of the pellets.
We don’t have a power station near our Coldry pilot plant to provide waste heat, nor do we need one for pilot scale R&D. What is important is being able to generate and modulate heat across a range of temperatures and operational profiles so that we may simulate the waste heat provided by various applications.
With this brief overview in mind, we may now step through the Coldry High Volume Test Facility.
The Coldry Process Flow Chart – HVTF
Coal from the nearby Maddingley mine is sized and delivered to the HVTF in semi-trailer loads. A front-end loader is used to push the coal into the in-ground receiving hopper.
The raw coal receiving bunker, which holds several hours’ worth of as-mined coal, underwent significant refurbishment. The bunker liner was replaced, as were the conveyor belt systems to provide reliable operations and greater throughput.
A suitable cover was added to reduce the impact of rain, while also providing extra storage for R&D samples.
The original control system had no scope for automation. The new system has the capability to take live feedback and adjust process parameters accordingly. One of the current R&D test work programs is focused on the development of the algorithm required to program the control system to respond to changes in coal composition, ambient conditions and waste heat variations.
The primary processing system is responsible for transforming the raw coal into a plastic mass with very specific physical characteristics, which then triggers the initiation of Brown Coal Densification. This is then extruded to form pellets which are then conditioned and dried.
Prior to this upgrade the mill and extruder train had a higher capacity than the feed-in system. This capacity mismatch was a legacy of changes to the plant over several development stages.
All conveyor belts have been upgraded as have several conveyor belt drive motors, to improve reliability and handle the additional volume and weight of coal entering the system.
Waste Heat Simulation System
The previous heating system was a low capacity, low-temperature water heater, and was relatively expensive, relying on LPG as its fuel source.
The new waste heat simulation system features a larger heating system which is more economical to operate, and capable of generating a wider operating temperature range, enabling greater simulation capability.
The control system allows programming of the heat profile to simulate a range of real-world integration applications, essential to better understanding optimisation of pellets along the process chain.
Packed Bed Dryer Improvements
A range of general improvements were also made in the Packed Bed Dryer building, all aimed at improving material handling, with an emphasis on dust management and control. Importantly, this delivers an improved work area and reduced need for housekeeping.
Matmor Test Plant Upgrades
The Matmor Test Plant has also undergone a range of upgrades and improvements. Again, the focus for these improvements is largely around automation, feed and discharge systems, improving the capability to perform extended, continuous performance testing. Additionally, several items of equipment were switched out to allow trials of new techniques associated with Matmor and its new cousin, HydroMOR. Lastly, we have modified some aspects of the retort itself, trialling new materials of construction and fabrication techniques.
Matmor is a novel iron processing technology that facilitates the efficient production of high quality direct reduced iron from inexpensive materials that have been traditionally thought of as poor or sub-economic quality such as mill scale, nickel tailings, low-grade iron ore and iron ore fines and lignite and other low-quality coals.
There are three distinct aspects to the process:
Our Coldry process acts as the raw material feed preparation stage, combining the ore and coal to produce the dry, dense pellets required to work with the furnace.
The furnace itself is unique. No conventional or emerging process tackles metal oxide reduction, in the same manner, operating at less than 1000°C.
Our unique chemistry leverages the rich volatile matter content of low-rank coals to achieve the rapid transformation of ore to metal.
Scale up of Matmor from our existing Test Plant (pictured) to Pilot scale and beyond will address all areas of the plant's operation including pellet production, composition and physical characteristics, plant thermodynamics and reduction chemistry.
The High-Volume Test Facility has commenced a series of test programs to support both the Coldry and Matmor plant development objectives in India.
In relation to Coldry, the HVTF is tasked with generating the following outcomes:
In relation to Matmor / HydroMOR, the Bacchus Marsh facility will be tasked with the following objectives in relation to design support for the Pilot Plant:
Market Testing & Sales of Product
As mentioned in previous announcements, suitable product output from R&D test programs will be sold where a market exists.
Currently, ECT is exploring the market with Coldry product for small (<5MW) and large (>5MW) boiler systems as well as batches of Coldry for downstream processes such as briquetting, pyrolysis and torrefaction. The Company had also begun the supplier qualification process for Coldry through one of Victoria’s large electricity generators, but due to the unexpected closure of the facility, this process ceased before completion.
All tests conducted to date have reinforced the performance and cost competitiveness of Coldry against the incumbent solid fuel, Brown Coal Briquettes.
Given the rapidly escalating and significant price of natural gas – in some cases, as high as $11 per GJ – we are receiving a significant number of enquires for testing. We are now in the process of selecting those that offer the greatest promise for continued commercial offtake. These tests, if successful, will likely lead to supply contracts for our Coldry product.
Our current market test initiatives have seen the company generate maiden sales of Coldry for FY16/17 and is on track to increase this to a target of 5,000-15,000 tonnes per annum for FY17/18. Further plant capacity increases up to 30,000 tonnes per annum will be assessed in line with ongoing R&D outcomes and requirements, with subsequent saleable product also to be made available to local consumers. For reasons of market competitiveness, the Company will not be identifying customers, or releasing dollar-based sales or earnings figures prior to the statutory reporting cycles but will update the market, where necessary, on tonnage based sales.
For further information, contact:
Ashley Moore – Managing Director [email protected]
There has been a great deal of media comment on high-efficiency, low-emissions (HELE) electricity generation recently.
This has created an opportunity to talk about our Coldry technology as part of an appropriate solution for brown coal-based power in Victoria.
To understand the opportunity requires some background on our energy market situation.
For those who haven’t followed the discussion the debate has been sparked by energy security and affordability concerns following the significant spot price spikes and rolling blackouts experienced in South Australia and the impending closure of Hazelwood power station in Victoria.
Prime Minister, Malcolm Turnbull has questioned renewable energy targets while calling for high efficiency, low emission coal-fired power stations and additional gas exploration to shore up reliable baseload power.
The Australian newspaper touts it as the ‘return of coal’.
There is no question that energy affordability is paramount to household and business budgets. Then there’s the economic cost to business of shutdowns caused by blackouts. The National Electricity Market (NEM) is tasked with maintaining 99.998% uptime, which means downtime of only 11 minutes a year.
This represents an opportunity for our Coldry technology. An opportunity to highlight the impact we could bring to bear in significantly reducing the CO2 intensity of Victoria’s brown coal-reliant power stations while supporting reliability and affordability.
The AEMO, our national energy market regulator, has highlighted the risk if peak demand conditions coincide with low wind availability, or generation or transmission outages.
Analysis by the Australian Energy Council on what this means for pricing indicates a high level of uncertainty with estimates ranging from ‘little impact’ through to a 42% increase. Fortunately, there is a recent example of market adjustment to the closure of base load power in South Australia where power prices jumped 36% from $66 to $90 per MWh in two months.
The debate playing out across the media is understandably black coal-centric, given the value of both the coal export market and the fact that black coal generates around 43% of Australia’s power.
Some of the media commentary (links below) cite the ability of power station technology known as ‘ultra-supercritical’ (USC) to deliver CO2 cuts of between 27% and 34% compared to business-as-usual.
Business-as-usual for black coal power stations is around 0.9 tonnes of CO2 per MWh, so based on the quoted figures, USC would bring that down to the range of 0.6 to 0.66 tonnes per MWh. Most USC figures we’ve seen quote about 0.75t/MWh.
The articles go on to highlight that USC power stations can be built and operated at a lower cost per megawatt hour (MWh) than wind and solar, delivering a lower cost per tonne of CO2 saved. The Minerals Council of Australia says there are more than 725 HELE plants operating across East Asia right now with a further 1,100 under construction or in the pipeline. This contradicts claims by certain interest groups that wind is cheaper than coal and that no-one is financing coal power.
The International Energy Agency (IEA) notes that China will increase its coal-based generation capacity by 20% by 2020 while adding 3% renewable capacity to its energy mix.
But what does this mean for brown coal (lignite)?
Before we answer that, it’s important to understand that whilst brown coal is not an export powerhouse for Australia like black coal, it is a major part of our energy mix, and generates electricity at lower cost than any other source.
Brown coal key stats include:
The two key takeaways from those numbers are:
Brown coal is abundant and cheap to mine, but its high moisture makes it inefficient to burn and therefore CO2 intensive.
The ‘extreme green’ view is ‘no coal is good coal’. The ‘pragmatic green’ view realises sustainability measures need to be both economically and environmentally sustainable; They also recognise coal will continue to be part of the world's energy mix for decades to come. In understanding the balance between economic sustainability, energy security and environmental sustainability, the role of technology in minimising CO2 intensity as we transition to a low or zero-emission future, becomes apparent.
The Greens begrudgingly accept that USC technology may, in fact, play out in the states of New South Wales and Queensland, yet assume that USC is not an option for Victoria. This view is understandable but mistaken. Here’s why.
USC technology runs on black coal with low moisture and high energy content and can, therefore, achieve the high temperatures needed to achieve ultra-supercritical operating conditions. Brown coal in Victoria contains 60% moisture, has a low net energy content and lower combustion temperature. It can’t produce enough heat in its wet, as-mined form to feed ultra-supercritical boilers. As such, it needs to be dried first.
The Greens believe this is a showstopper. In the past, they’d have been correct.
Former Victorian Energy Minister Theo Theophanous has been vocal on the topic. His opinion piece in Melbourne’s Herald Sun on 13 February titled Rival interests use fear as the key weapon to sell their case in our energy wars notes that “Two (clean coal) technologies are proposed. The first is ultra-supercritical technology to ensure coal is burnt more efficiently, reducing emissions by about 20 per cent and even more if coupled with pre-drying technology.
“The second involves carbon capture and storage, where carbon is captured before it is released into the atmosphere, and various methods are used to store it.… we may be able to retrofit a number of existing coal-fired power stations that we think will be around for the next 20-plus years with USC technology, reducing their emissions by 20 to 30 percent. That initiative in Victoria could save as much as 1000 wind turbines.”
The key phrase there is ‘pre-drying technology’.
Drying is easy. Drying efficiently and cost-effectively has proved highly elusive. The ‘holy grail’ of brown coal R&D for decades has been to find a cost-effective drying solution. The approach always involved energy-intensive methods that employed high temperature, high pressure, or both. Most created a waste water clean-up issue too. The energy and cost proved to be a zero or negative sum game. The energy input required to ‘heat and squeeze’ the coal was more than the uplift in the energy value of the finished product.
Our Coldry process is different.
Coldry is a low temperature, low-pressure solution with the potential to cost-effectively deliver a ‘black coal equivalent’ product suitable for use in HELE power stations such as USC.
With the impending removal of Hazelwood Power station from the generating mix and the inevitable increases in the cost of supply of electricity, it is important to understand the options available. USC is on the table for Victoria, thanks to Coldry.
If deployed in Victoria, a new Coldry-enabled USC power station could reduce CO2 intensity by 43% to 62% per MWh compared to business-as-usual.
A retrofit to Hazelwood power station could see a 30%-plus reduction in CO2.
Business columnist for the Herald-Sun, Terry McCrann commented in an article on 14 February “The State Government must take over the Hazelwood power station and keep it operating.
That is quite simply the only way we are going to keep the lights on not just in Victoria but also South Australia.”
With this in mind, we reviewed a report we authored in late 2010, comparing the cost of replacement generation scenarios for the of the Hazelwood power station.
Our report provided an alternative view to a proposal from a local activist organisation at the time which touted a combination of wind generation and combined cycle natural gas generation (to provide base load availability when the wind isn’t blowing).
Using methodologies developed by highly regarded consulting firm ACIL Tasman, we added economic comparisons, including a high-efficiency ultra-super critical steam plant using a dried lignite based fuel (i.e. Coldry pellets).
In that report, which we’ve recently revisited in the light of current interest, the key metrics of generation cost and cost per tonne of CO2 emissions avoided made it clear that the Coldry-enabled solution was superior, while still achieving significant total emissions reductions.
Late 2010; Comparison table of replacement options for Hazelwood generation capacity
|Business as Usual||Activist Proposal (Wind turbines with NatGas backup)||Coldry + USC Solution||
All Wind (Reference Only)
|Generation Cost of Power ($/MWh)||
|CO2 Intensity (t/MWh)||
|CO2 Emitted (mt/y)||
|CO2 Mitigation Cost ($/t CO2)||
Note: Cost of Generation includes allocation for Capital (depreciation and finance), Fixed & Variable operations and maintenance, as well as fuel cost
However, the world has moved along in the interim.
Wind generation capital costs have reduced as the technology progresses along its development curve, as has the cost of the Coldry technology. The price of natural gas has also significantly increased in terms of its long-term average.
Accounting for a 20% reduction in capital for wind generation, and the near halving of the estimated capital costs associated with the Coldry plant, and the escalation of the natural gas price to $9/GJ (expected by year end 2017), the picture today looks different. The most appropriate outcome hasn’t changed, but the financial arguments have shifted.
2017; Updated comparison table of replacement options for Hazelwood generation capacity
Business as Usual
|Activist Proposal (Wind turbines with NatGas backup)||Coldry + USC Solution||
All Wind (Reference Only)
|Generation Cost of Power ($/MWh)||
|CO2 Intensity (t/MWh)||
|CO2 Emitted (mt/y)||
|CO2 Mitigation Cost ($/t CO2)||
Before readers get excited about the prospect of an “All Wind” solution, it should be noted that there are limitations with the technical and financial modelling. The capital estimates for wind omit the required grid connection cost for this geographically disparate generation source. This can add one-third to the total cost.
Reliance on wind generation leaves consumers exposed to outages when the weather is not supportive.
Australia needs to reduce its emissions intensity.
But it also needs to be practical, ensuring least-cost abatement solutions are implemented while keeping the lights on so we can afford to bridge the gap between today’s higher cost, lower reliability renewables and a lower emissions future.
Coldry+USC is that practical solution.
AEMO Insights November 2016 – Market Insight Report – Victoria’s supply Outlook - https://aemo.com.au/-/media/Files/Media_Centre/Insights/AEMO-Market-Insight-Report-Victorias-supply-outlook031116.pdf
The Company has received several emails seeking clarification on the EFH facility announced on 22 December, 2016.
In addition, there has been a significant amount of chatter on internet stock market forums, much of which is misguided.
As such, the Company provides the following FAQ to help clarify its arrangements with EFH.
Q: Why is the EFH offering only open to '708' investors?
A: Based on EFH’s licensing, the Company’s products are only available to sophisticated and professional investors under Section 708 of the Corporations Act 2001. The ‘708’ classification is covered further below.
Q: Who can participate in the EFH arrangement?
A: Any Option-holder who is eligible as a 'sophisticated' or 'professional' investor is encouraged to contact ECT to formally express their interest.
'Sophisticated' or 'professional' are classifications used to describe investors who are deemed to be more experienced and able to evaluate investment opportunities without a prospectus or other regulated disclosure documents.
The requirements for each classification, under Section 708 of the Corporations Act 2001, are summarised below.
In our announcement on 22 December 2016 we advised qualified investors who would like to know more, to contact ECT to discuss further. The details will then be passed to EFH if the option-holder wishes to formally apply. Acceptance is subject to EFH terms and conditions and each interested option holder will be advised if there is available capacity under the facility.
All potential EFH clients must also undergo EFH’s “know your customer”/anti-money laundering (KYC/AML) screening process before any transaction is executed.
To date, ECT has received formal interest under the following allocations:
Q: How much of the EFH arrangement will be taken up by Directors and staff?
A: The Directors’ allocation was prioritised for the following primary reasons:
The Company has capped the maximum allocation that Directors and staff can take under the arrangement to 75 million shares to ensure that the predominance of the participation is offered to eligible Option-holders.
Q: Is the EFH facility an arm’s-length transaction?
A: The EFH facility is offered on the same terms that EFH generally offers borrowers for all their loans. The loan agreement is between EFH and the Option-holder. There have been no special privileges created for those taking up this arrangement for financing options conversion.
Eligible Option-holders could approach EFH independent of ECT and traditionally, this is how EFH has offered this type of facility. The difference with the EFH-ECT arrangement is that the proceeds of the loan are non-discretionary, meaning they must be used solely for options conversion.
The arrangement complies with ASX Listing Rule 10, in addition to Part 2E (Related Party Transactions) and Part 2J of the Corporations Act 2001.
s.260A of the Corporations Act 2001 states that a company may financially assist a person to acquire shares (or units of shares) in the company or a holding company of the company only if giving the assistance does not materially prejudice the interests of the company or its shareholders or the company’s ability to pay its creditors.
In the case of the EFH facility, it materially benefits shareholders in several ways:
Q: Are Directors and staff obtaining an advantage over the eligible Option-holders?
A: Any director or staff taking up the EFH loan will be required to adopt a 3 year term, 12 months longer than the other eligible Option-holders. Repayment of interest at the end of the term by directors and staff will be triggered at a lower price than the other eligible Option-holders. Both points highlight that it is the eligible Option-holders who obtain an advantage relative to Directors and staff.
Q: Can EFH trade the ESI collateral (i.e. the shares in the Company)?
A: EFH has the right to trade the collateral held under its custodian and has advised that any and all trading associated with ESI collateral is designed to have no impact on share price.
Q: Is the Company concerned about EFH’s trading influencing share price?
A: Given the long history and the clean track record with global regulators, the Company is satisfied that EFH’s trading of ECT shares is unlikely to have a material effect on its share price.
Q: Why is this EFH arrangement with ECT and its Option-holders different to all the other facilities EFH has provided ?
A: This is the first facility where the Company is the sole beneficiary of the loan proceeds. This heightens the alignment of interests between lender, borrower and Company. The proceeds of these loans can only be used to convert options into fully paid ordinary shares.
Q: What other ASX company shares have EFH loans?
A: Traditionally, EFH transacts with substantial shareholders of companies looking to access capital. As any financial institution should, EFH takes client privacy and security very seriously and does not share information related to individual transactions publicly, unless authorised by its clients. Recently in Australia, EFH has executed transactions with shareholders of Diversa Limited, NearMap and MaynePharma, among others.
Q: Can the Company stop the EFH arrangement?
A: Following the establishment of each loan between EFH and an Option-holder, the term of that loan must be completed. Early termination of an EFH loan is generally not allowed, except in exceptional circumstances like a takeover. That being said, ECT can cease offering this arrangement to eligible Option-holders at any time for any remaining capacity. There is no cost to ECT in terminating the arrangement on this basis.
Q: Can EFH short sell or on-lend the ECT shares?
A: EFH is contractually prohibited from short selling, on-lending or hypothecating ESI shares held in their custodian.
Q: Why is it in EFH’s interest to have a rising share price?
A: The interests of EFH, ECT, and ESI shareholders at large are mutually aligned. An increase in share price is a best-case-scenario for several reasons – first, it increases the likelihood EFH clients will continue to pay interest due on their transactions and repay the principal amount of the loan upon maturity. Also – considering EFH expects to enter into additional future transactions collateralised by ESI shares, an increase in share price makes the EFH transaction more attractive to potential EFH clients.
Q: Why have some people been critical of EFH?
A: EFH is an innovator and global leader in the field of securities-based lending. And, although the company has been around for 15 years, EFH transactions may seem foreign to investors unfamiliar with these types of financing vehicles. This unfamiliarity may cause individuals without a complete understanding of the EFH product, or individual transactions to make assumptions without seeking verification for their statements.
EFH has taken great strides to educate the global marketplace about the company and its products, and as is the case with ECT, always conducts business in a manner that is fully transparent. EFH is happy to answer any questions related to the company or statements made about it to ensure the marketplace is fully informed.
If you wish to raise any questions with EFH, please contact ECT through the Company Secretary and we will collate them and put them to EFH for response.
Q: Have EFH been fined or indicted for securities law breaches?
A: No. Neither EFH nor any of its global subsidiaries have ever been party to any regulatory or legal sanctions related to securities law breaches in any jurisdiction. To the best of ECT’s knowledge and belief, EFH adheres to all requisite legal and regulatory requirements in the course of doing business and the company holds regulatory licences from the Australian Securities and Investments Commission, the Financial Conduct Authority of the United Kingdom, and the Hong Kong Securities and Futures Commission.
Q: Have EFH ever reneged on handing back the shares at the end of a loan?
A: Never. ECT understands that they have a 100% return rate upon transaction maturity and repayment.
Q: How does ECT manage corporate governance, compliance and Board integrity issues?
A: Decisions such as that made regarding EFH, are made after rigorous research by the Company, advice from corporate advisers. The decision by the Executive to pursue this type of funding was strongly supported by the Board.
ECT also maintains policies and procedures in support of governance best practice. Importantly, this framework includes David Smith, an independent non-executive director, fulfilling the role of Integrity Officer. The scope of this role includes:
David Smith can be contacted via email at [email protected].
Q: Will ECT provide support for retail holders of options?
A: ECT, at all times, will endeavour to act in the interests of ALL shareholders. Currently ECT and its service providers are not able to provide options finance solutions to retail investors. This may change in the future, as the Company continues to seek and develop solutions which support all Option-holders.
Q: How does ECT decide what the WACC is?
A: The weighted average cost of capital, also called the WACC, is a calculation of the Company’s cost of financing by comparing the debt and equity structure of the business. Put more simply, it measures the true cost of borrowing money or raising funds through equity to finance the Company’s strategy based on both historic cost and the current level of debt and equity in its structure. The WACC is calculated using a well-accepted formula.
In the case of ECT, ~90% of all capital has been raised through the issuance of equity. Thus, our WACC is relatively high (>25%). Pursuing non-dilutive sources of finance, through the likes of Brevet and EFH, is intentional and designed to start bringing down the long term WACC.
Q: How does ECT decide how to price capital raising alternatives?
A: The Company regularly prices the capital raising alternatives against each other in the form of a comparison matrix, which includes the WACC per $ raised, likely impact on share price, reputation risk and performance risk in the execution of the transaction. In the context of ECT’s historical WACC, the facilities provided by EFH and Brevet are over 30% cheaper than the historical benchmark. Any new alternatives will be compared to the existing alternatives in this matrix and presented to the Board as part of the regular operational reporting.
Q: Is the company trading in its own shares with the EFH arrangement?
A: The Company has carefully reviewed the compliance requirements relating to the EFH facility and is satisfied the arrangements are at arm’s length and do not constitute trading in its own shares, with particular reference to s259 of the Corporations Act.
Q: Why was resolution 4 withdrawn at the Company’s 2016 AGM?
A: Resolution 4 related to the approval of all prior issues of securities under ASX listing Rule 7.1 to give the Company a full ‘reset’ of its ability to issue securities up to 15% of its issued capital in the following 12 months, without having to seek shareholder approval for that issue.
The Company believes that eliminating this as a ‘standard placeholder’ resolution (which had been approved at previous years’ AGMs) is more aligned with the fact that prior issues naturally ‘reset’ on a rolling 12 month basis. It is preferable to reserve the resetting of the issuing capacity for exceptional circumstances where the details of issuance can be provided to shareholders ahead of approving the reset, as was done with Resolution 6 at the 2016 General Meeting. In some instances, an Extraordinary General Meeting can be held to approve a proposed issuance.
In short, the withdrawal of resolution 4 is consistent with the Board’s view that it is generally preferable for shareholders to have more direct transparency and control over the Company issuing further securities.
Q: Why haven’t we had a Master Project Agreement (MPA) update after senior management were sent to India pre-Xmas?
A: The Company continues to provide guidance on the advancement of the MPA based on the information and target timeframes at hand. Updated guidance is provided if circumstances or targets change. In our announcement on 22 December 2016, the Company advised that the parties continue to work to conclude the MPA as expeditiously as possible. It is inappropriate to provide further commentary on discussions currently underway from the perspective of both confidentiality as well as commercial positioning, other than to say all parties remain highly motivated to conclude discussions and move to agreement as quickly as possible. The Company will continue to comply with its continuous disclosure obligations.