Newsletter July 2014
Dear fellow shareholders,
This Newsletter covers several current topics, including:
- India Activity - Coldry Demonstration Feasibility Study
- Thermax - profile
- India Market Overview
- Options Program
Before I get into each topic, I’d like to provide a general overview of where your company stands and provide a vision for where we’re headed.
Coldry: Positioned to move toward demonstration in India
Our key objective is the demonstration of the Coldry technology at commercial scale.
To achieve this objective the company has developed and pursued its strategy in India, which I’ll touch on in more detail further down.
Importantly, the India strategy has delivered significant capital cost reductions via our vendor selection program, which culminated in the announcement on 19 May that we’d appointed Thermax as our ‘EPC’ partner.
In relation to development of the demonstration project, we’re in the final stages of preparing the Feasibility Study for Neyveli Lignite Corporation (NLC) for the construction of the demonstration plant on their power station site.
The work by Thermax in taking our detailed ‘construction ready’ design completed last August, and localising it to the NLC site, has identified significant potential capital savings in excess of $35 million compared to building the same plant here in Australia.
We expect to deliver the Feasibility Study to NLC late July or early August and anticipate a decision from NLC on how to proceed by mid to late September 2014.
We are working closely with Greenard Willing, YES Bank and Thermax to deliver a Feasibility Study report that not only addresses the fundamental elements required by NLC, but also encompass broader project considerations to make their decision as straight forward as possible. Our Chairman, Glenn Fozard, coined the term “Project in a box” to describe the approach; that is, the report will contain not only the core technology, but its engineering implementation aspects, commissioning, operations and maintenance, finished product marketing and sales aspects, as well as project financing.
In short, the company has positioned Coldry to take maximum advantage of the highly skilled, yet lower cost fabrication and construction capability in India, while working with India’s ‘lignite authority’ NLC to develop an appropriate demonstration project aimed at achieving technical and commercial validation at scale.
Following successful demonstration, the Coldry process will be suitably de-risked in the eyes of potential customers, paving the way to re-engage parties globally that have previously expressed interest and allowing us to take a second look at the feasibility of projects here in Australia.
I thank you for your continued support as we work to deliver on the potential of our Coldry process.
We previously announced our two-pronged activity in India:
- India manufacturing strategy
- India project development
India Manufacturing Strategy
Underpinning the India manufacturing strategy was the vendor selection program, which concluded with the appointment of Thermax announced on 19 May. I’ll talk a little more about Thermax a bit further on in this Newsletter, but I think it’s important to highlight that the key driver behind appointing Thermax was to deliver on a crucial aspect of the second activity set; India project development. Specifically, Coldry demonstration.
We’ve previously outlined the project development activity around Coldry Demonstration centred on our interaction with Neyveli Lignite Corporation (NLC).
To recap, NLC called for expressions of interest early last year (2013) from companies able to provide lignite-upgrading solutions. Naturally we applied, promoting Coldry as an ideal drying solution and a gateway application for coal to gas, oil and other high-value outputs, including those derived from Matmor technology.
Since then we’ve progressed through various rounds of technical review culminating in the request from NLC to submit a detailed Feasibility Study, including bankable capital estimates by an appropriately qualified firm, for the construction of the Coldry demonstration plant at the NLC site. This is where the appointment of Thermax comes into play. Our vendor selection program costed the Coldry demonstration plant at $15 million (+/- 30%), excluding certain items provided by ECT.
For context, this is significant progress considering we’d costed the deployment of the Coldry demonstration plant in Victoria at around $60 million. Via our India strategy we’ve positioned the company to achieve the same demonstration objective for around half the cost compared to an ALDP supported project and potentially one quarter the cost of the full Victorian capital cost.
Following completion, the Feasibility Study will go to NLC’s Board for comprehensive review and follow up meetings with ECT to determine decisions on the path forward.
As outlined in the presentation at our recent General Meeting, an indicative timeframe for an NLC decision to proceed is around late September (link), with our target to achieve binding agreements prior to the end of the year.
In addition to project development discussions with NLC, we’re also in early stage discussions with other parties on Coldry adoption. These opportunities are early stage. Nevertheless, the work we’ve done in support of NLC project development is largely transferrable to other projects in India. These opportunities provide a project development pipeline post-demonstration at NLC.
Thermax, our engineering, procurement and construction partner in India, is a highly reputable and capable company with extensive experience in power station and heat exchange disciplines.
To find out more about Thermax, please visit their website here: https://www.thermaxglobal.com/
Why India? Why now?
It can be hard to grasp the enormity of the opportunity in India from a distance.
The presentation at our General Meeting by Mr Rajnesh Trivedi, Senior Director at YES Bank provided an insight into the key drivers behind the opportunity for our technologies. I encourage you to take a look at the presentation (link) if you have time, but in summary it highlighted:
Thermal coal – Demand supply gap
Coal is the most important source of energy for India, fuelling 53% of the country’s total energy needs and 81% for the power sector. Total demand was 702 MT in FY 13.
Demand supply mismatch – imports filling the gap
- India has a large demand supply mismatch of thermal coal which is likely to increase further given the regulatory challenges for new coal mining and limited output increase from existing mines.
- This massive demand supply gap has driven increase in the import of coal. India is now one of the largest importers of coal in the world. The total import bill for coal in India was USD 15 bn in FY13 and is likely to double by FY17.
Coldry – an efficient solution to help meet the huge thermal coal demand in India
Coldry offers a unique and cost effective solution to convert lignite into a storable, transportable, energy rich fuel ideal for thermal coal market. Coldry offers substantial benefit for the energy security of India and provides lucrative commercial opportunities to lignite mine operators
- Energy Security – Coldry enable more effective and efficient use of domestic lignite resources, reducing dependence on imported coal.
- Geographical spread of lignite an advantage - Availability of lignite in India is largely confined to the States of Tamil Nadu, Gujarat and Rajasthan where higher grades of coal are almost completely absent, providing localised competitive advantage.
- Increases the market reach for lignite mine operators – Coldry improves transportation economics by shipping less water.
Matmor potential in India
Two key concepts relating to Matmor’s capabilities make it particularly valuable to the Indian market:
- Resource security - India has very limited domestic coking coal resources
- Steel intensity - India has a huge requirement for iron and steel for decades to come as it develops its economy, builds infrastructure, and lifts some 270 million people out of poverty
A picture of future expected iron and steel consumption of nations can be drawn from the Steel Intensity curve shown below.
As national economies grow, they build the required infrastructure to support continued growth – housing and buildings to accommodate population and businesses; roads, rail and ports to move goods and people; industrial developments such as factories, refineries and so on to create jobs, income and GDP. To do all of this, they consume iron and steel.
Over time this rate of consumption decreases as infrastructure levels reach suitable levels to sustain the economy. This pattern has been traced many times by various nations, and that pattern is reflected in the chart above.
In summary, India is only now commencing its climb up the steel intensity curve. Its current consumption levels are expected to grow, which will require more iron ore, more coking coal, and new solutions to the supply challenges for raw materials and finished iron and steel products.
Given India’s low domestic reserves of coking coal, they are actively seeking solutions to enable the utilisation of more of their domestic reserves.
NLC lignite has already been shown to be effective when used in Matmor technology to produce iron. We are working on developments to support Matmor’s evolution in India.
More to come in subsequent updates.
- The Prospectus for the issue of two new Options series was lodged on 30 June
- The Offer opened on 10 July 2014
- The Offer closes on Friday, 25 July 2014
- If fully subscribed, the program will raise almost $1.4 million
- Approximately $505,000 in pre-commitments and underwriting was locked away before the offer opened
The Options program, approved by shareholders at a General Meeting held on 30 May, delivers on two important fronts:
- Providing a pathway to potential value creation for holders of expired ESIO
- Positioning the company to benefit from future success via conversion of options to generate capital inflows
Option holders, shareholders and new investors are encouraged to read the prospectus and if participating, ensure applications and funds are in before 5 pm on Friday, 25 July.