Brisbane, Nov 27, 2008 AEST (ABN Newswire) - Linc Energy Ltd's (ASX:LNC)(PINK:LNCYF) Annual General Meeting by the Chief Executive Officer, Mr Peter Bond.
Company Profile
Linc Energy is an innovative, forward thinking energy company and Australia's leader in clean coal technology. The company's vision is to become a dominant player in the supply of more environmentally friendly power, diesel and jet fuel.
Linc Energy aims to achieve this vision by bringing together, for the first time anywhere in the world, two proven production processes known as Underground Coal Gasification (UCG) clean coal technology and Gas to Liquids (GTL).
These processes will economically convert vast "stranded" coal deposits into ultra clean liquid fuels.
Linc Energy will also use the Syngas produced from UCG clean coal technology as feedstock for gas turbines to generate much needed environmentally friendly electricity.
The company has a unique leading edge capacity to provide a viable, more sustainable and smart alternative source of liquid fuels and power generation well into the foreseeable future.
Linc Energy represents a new future for liquid fuels production and power generation.
Chief Executive Officer's Report
2008 A CHALLENGING AND GREAT YEAR FOR LINC ENERGY
It is my pleasure and privilege to again stand before you and present my third CEO Report for Linc Energy. The focus of this report is to review the past year and to present to you an exciting future for Linc Energy... As I will highlight in my presentation we have achieved great results this year. As I stated last year these would not have been possible if it were not for the great team we have put together at Linc Energy.
2008 has been a year of great and significant achievements:
- The bringing together of an experienced and talented executive team
- We now have an employee base of over 110 staff
- The development of our own UCG fields
- The successful commissioning of the GTL plant
- The acquisition of more land within our ML at Chinchilla
- Releasing JORC statements on Pentland, Emerald, Chinchilla and the Arckaringa Basin
- We completed the merger with SAPEX
- We have acquired additional tenements in Queensland and South Australia
- Our extensive exploration and drilling program
- The entry into the ASX 200
- One of the best performing stocks in 2008
- Finalisation of the contractual arrangements in Vietnam
- Sale of the Emerald coal tenements for $1.5 billion.
Last year I reported that our site at Chinchilla was not just a destination but Linc Energy's destiny. That the work we are doing at the site does not just make commercial sense but that our Underground Coal Gasification (UCG) and Gas to Liquids (GTL) vision was compelling. Even more so over the last 12 months that vision has come to reality.
I also reported that the conversion of stranded coal to environmentally clean diesel with zero sulphur was an environmental necessity. That the provision of oil and diesel was a matter of national strategic necessity from a fuel and energy security point of view. Those statements have simply been reinforced as being correct over and over again.
Strategic Importance of UCG to GTL
The Australian Federal Government released a paper on "Securing Australia's Energy Future" and stated that it was clear that alternative fuel and energy sources needed to be found and developed in order to secure our countries energy security. Not only do countries like the United States and Australia recognise the need to secure energy sources for the future, but over the last 12 months we have been constantly contacted by companies in India, China, Vietnam, the United States and of course Australia. Energy security was paramount as an issue.
In February 2008, Hon Martin Ferguson MP Minister for Resources and Energy Minister for Tourism stated:
"Energy security is absolutely critical to Australia's economic prosperity and [that] I believe coal-to-liquids and gas-to-liquids will play a major role in Australia's energy future."
and
"Linc Energy is about to open a pilot Fischer-Tropsch plant that will produce 5 barrels a day of ultra clean diesel using gas feed from its underground coal gasification project. This is a very exciting development at the cutting edge of energy science and technology, and I wish the company every success in scaling up to commercial volumes."
Economic Importance of UCG to GTL
Over the last 24 months we have seen the price of oil both skyrocket and then drop dramatically. In January 2007 the price of a barrel of oil was $US51 and in November 2007 it was $US94 per barrel. Earlier this year it was over $US150 per barrel and yet today it is $US50 per barrel. Yet despite these wild fluctuations, Linc Energy's business model has not changed. When we can produce diesel at $US28 per barrel, these fluctuations only impact on the profit per barrel not the commercial viability of the process.
The need for Australia to develop and support companies in our field is clear. Again I quote Minister Ferguson.
"With only about 8 years known oil reserves remaining at today's production rates, Australia is looking down the barrel of a $27 billion trade deficit in oil and condensate by 2015
Without turning our minds to the future, we will become increasingly reliant on oil imports from unstable parts of the world, producing only about 20 per cent of our needs by 2015 and burdening the nation's trade deficit with a $27 billion bill for oil and condensate."
Environmental Importance
The Rudd Labor Government has made it very clear that it saw Australia becoming a signatory to the Kyoto Protocol as a priority. The details and the timeframe of a Carbon Trading Scheme have not yet been finalised. However, we see any introduction of a scheme as an opportunity for Linc Energy and not a threat.
To quote the then Deputy Premier and now Premier of Queensland, Hon Anna Bligh,
"Linc Energy's proposed 200 mw gas fired power stations using fuel from the UCG process would produce lower greenhouse gas emissions than conventional coal fired power stations."
The use of UCG Syngas for the production of cleaner power that will also deliver a substantial reduction in CO2 gases emitted from the process. If either a carbon tax or carbon trading scheme were introduced Linc would be well placed to capitalise on either of these initiatives.
In addition to the natural lower CO2 advantages of UCG to GTL, we have also established a Joint Venture with BioCleanCoal Pty Ltd and formed the company Linc Carbon Solutions. This project is moving forward rapidly at the R&D stage and we expect to establish that our process of CO2 conversion is commercially scalable and when we do, we will have clearly placed ourselves, as not only a clean coal technology company, but THE clean coal technology company.
MILESTONES FOR 2008
I would now like to focus on the milestones we have achieved over the last 12 months.
The Team at Linc Energy
Perhaps one of our greatest achievements over the last 12 months has been the increase in relation to both the quantity and quality of our team at Linc Energy. It might come as a surprise to some, that over the last year, we have dramatically increased the number of staff employed by Linc. I doubt there is a company anywhere in Australia, let alone Queensland, that would have exceeded the growth of Linc.
At this time last year we had a workforce of just over 30 people plus contractors. We now have over 110 full time staff and a large range of independent contractors. The benefit that this employment brings to Queensland should not be lost on the politicians. We have over 50 staff and their families who live in the region surrounding the Chinchilla facility and our staff make a significant contribution to the communities in the Dalby and Chinchilla region.
Our head office has grown so quickly that we now have staff on three floors in buildings spread over the Brisbane CBD. As of this week we were rated by Deloittes' as Queensland's 12th largest publicly listed company.
The Commissioning of our Third UCG Reactor
I reported the importance of the strategic acquisition of Yerostigaz in Uzbekistan. This decision has paid off handsomely for Linc and have clearly set us up as the world leader in UCG development.
In September 2007 we produced gas from reactor 2 and we then commissioned our third UCG reactor at Chinchilla. The importance of this third reactor and the impact on our commercial operations should not be underestimated. Reactor 3 is the most advanced UCG reactor in the world. It is one where we have used a combination of horizontal and vertical wells to ensure the quality and quantity of gas produced is satisfactory for commercial use and not just at a demonstration level.
We have used a vast range of advanced technology to deliver on this aim. Drilling, grouting, casing, piping, monitoring and production are all world class and will allow us to implement our findings in Reactor 3 commercially anywhere in the world. This is world leading technology that proudly belongs to Linc Energy. Simply put, our first two (2) UCG generators were being driven predominantly from the Russian UCG experience and their processes. This new field is a Linc Energy based process and a significant step forward from the old process.
The new UCG field (UCG Generator 3) is capable of producing in excess of 250,000 cubic metres of syngas per day from its initial operations and will allow us to scale up to a full commercial field capable of producing approximately one million (1,000,000) cubic metres of syngas per hour.
GTL Demonstration Plant
Without question our greatest achievement for 2008 has been the successful completion and commissioning of our GTL demonstration plant.
On 14th October this year we announced that we had successfully produced first liquids (hydrocarbon liquids) from our GTL plant. We were able to successfully complete a world first by introducing UCG gas into our FT reactors that produce high quality synthetic fuels.
This was a milestone that all of us at Linc Energy have been working toward since the day Linc Energy was listed on the ASX two and a half years ago. The production of the first liquids at Chinchilla is a significant milestone not just for Linc Energy but also for the global community as Linc Energy has now proven that it can produce liquid fuels from UCG gas. This process provides the potential for billions of tonnes of stranded coal resources to be converted into transport fuels in an environmentally acceptable way. When we can convert each tonne of coal to approximately 1.5 barrels of fuel, the potential of what we at Linc Energy have achieved today is enormous.
Over the coming twelve months Linc Energy will continue to operate its GTL demonstration facility and use the experience we've gained to assist with finalising the engineering scope for the Company's proposed 20,000 barrels per day commercial facility.
Exploration and Drilling Program
Over the last 12 months our exploration and drilling program has increased dramatically. At this time last year Linc, Energy employed one Geologist and we now employ eight Geologists.
One of the fundamental underpinning strategies of our company has been to own our own resources so that we could be in control of our destiny. This year we have released statements in accordance with the JORC Code on:
Chinchilla 600 million tonne resource (measured resource of 24 million tonne, indicated resource of 222 million tonnes and an inferred resource of 354 million tonnes^) with an exploration target range of 800 million to 1 billion tonne1
Emerald 852 million tonne (inferred resource^)
Pentland 266 million tonne (176million tonne indicated and 90 million tonne inferred*)
SAPEX 1.69 billion tonne. (Inferred with an exploration target of 7 to 9 billion tonne1)^
Once again it is important to point out that these tenements are only part of our portfolio of coal tenements in Queensland and South Australia. We have significant coal resources at our disposal and the drilling of these resources will remain one of the driving forces of our business. It is these large coal resources that are the backbone of our diesel and jet-fuel business plans. With the number of geologists on staff and an average of seven to eight drilling rigs at any time working towards our outcomes, we are poised for a big 12 months.
Status of Tenements (Sale of Emerald)
The extensive drilling and exploration program has allowed us to properly understand the quantity, quality and suitability of our coal resources for UCG. The exploration work undertaken at Pentland and Emerald demonstrated to Linc that we had valuable assets that if sold would allow us to have the capacity to finance our first commercial plant internally.
Our exploration program at Pentland established that we have a valuable coal resource with a 266 million tonne^ (inferred resource ion accordance with the JORC Code) of coal suitable for export as thermal coal. We are currently in discussions with other parties about the alternatives available to Linc Energy at this mine.
Emerald presents an entirely different set of options to our company. Last week we announced to the ASX that we had 852 million tonne^ (inferred resource ion accordance with the JORC Code) (in accordance with the JORC code) with a 200 million tonne area identified being suitable for open cut.
Xinwen has signed a non exclusive Heads of Agreement with us to purchase the Emerald Mine for $1.5 billion. There is clearly no need to point out that this was a significant transaction that has important impacts for Linc Energy.
During the period initially allowed to Xinwen to complete the transaction Xinwen sought an extension to allow them to work through issues with their government. Perhaps the most important issue was that during this time we witnessed the meltdown of the world financial markets.
China was not isolated from this meltdown with the consequence being that the Chinese government scrutinised all transactions far more cautiously and hence progress has been slower than we previously anticipated.
Our understanding of the situation in China was supported by an article in today's Courier Mail.
" In the middle of the global economic downturn and despite several high profile knockbacks, China remains strongly interested in investing in the Australian Mining sector…."
And
"Now was seen as a good time to buying time due to the lower prices and the fact that the Australian dollar had dropped."
Xinwen has always assured us that the transaction would be completed and as recently as 10 days ago provided us with confirmation in writing that they were happy with the transaction, were working with their authorities and were confident that they would sign a contract and pay a deposit before the end of 2008.
New Tenements
Queensland
As a reflection of our focus on ensuring that Linc Energy has access to vast resources we have been granted two more exploration tenements; an EPC in Emerald and Biloela. We also have applications lodged for another twelve EPCs in Queensland. During the last year we have also lodged four Mining Lease Applications and four Petroleum Lease Applications.
South Australia
We have applied for another two Exploration Licences in the Arckaringa Basin and both these adjoin our current leases. In addition we were granted two ELs in an area only 100km North of Adelaide.
Completion of the SAPEX Merger
Last year we signed an MOU with SAPEX but as we started to work closely with SAPEX it became apparent that the SAPEX Oil, Gas and Coal leases were a great asset that would compliment Linc Energy's existing resource base.
We entered into a scheme of arrangement with SAPEX and on 26th September the shareholders of SAPEX voted overwhelmingly in favour of the merger with Linc Energy. That merger was formally completed in October this year.
Since the merger in October we have had preliminary results come in for both seismic and exploration drilling on the SAPEX leases. We were able to announce a confirmation of huge coal deposits of 1.69 billion tonne^ (inferred resource ion accordance with the JORC Code) in EL 3326 and EL 3325 in the Arckaringa Basin. In addition we have announced an exploration target on these ELs of 7 to 9 billion tonnes1^. It needs to be pointed out that these two leases are only the tip of the iceberg and represent only 5% of the total area under our leases.
Oil Exploration at SAPEX
Whilst we obtained the SAPEX assets primarily for the coal potential because of access to infrastructure such as rail and ports, the fact remains that the SAPEX licences hold some excellent petroleum potential. The recent seismic program shows at least eighteen prospects and leads with a priority target area of eight drilling locations. Linc Energy will aim to commence drilling the Arckaringa Basin for petroleum opportunities in the second quarter of 2009 with the program taking approximately 12 to 18 months to complete. We should have some excellent indications of what the Arckaringa Basin is capable of producing some time in 2009.
In order to enhance our drilling program we are in negotiations with a North American drilling and exploration company based out of Texas with the aim of having them on site in the second quarter of next year.
Vietnam
Once again we reached a great milestone for such young company. In October this year we signed a contract with Marubeni Corporation and the Vietnam National Coal Industries Group (VINACOMIN) to undertake Stage 1 in the Red River Delta area in Vietnam.
VINACOMIN holds the rights to develop Vietnam's coal assets and they have an estimated 30 billion tonnes of coal (Non-JORC Code standard) based on exploration taken to date. Linc Energy has been contracted by the Joint Venture Company to undertake Stage 1 feasibility and then to progress to the next stage which includes the production of UCG gas for power generation.
This is an exciting project for Linc Energy and we are looking forward to working with our partners in this project in Vietnam as this project provides us with an opportunity to quickly generate revenue for our shareholders.
THE FUTURE
World Financial Crisis
No report on Linc Energy would be complete without placing us in context with the reality of the world financial markets. To quote Aaron Lynch market analyst
"We are witnessing history - as this current position of the market is brand new in the sense of how far we have fallen. Taking the S&P 500 market in the US (a great gauge of market sentiment) we see this current bear market is now the largest in record.
As the CEO of Linc Energy, I am always concerned about our shareholders - protecting their interests and their investment. Yet amidst all this turmoil and gloom in the markets the performance of Linc Energy has been very impressive and one I am personally very proud of.
Our performance over this very difficult year has been recognised both nationally and internationally. A few months ago, we became an ASX 200 company. This is an amazing achievement for a company as young as ours. Deloittes recently showcased Linc Energy as one of the best performing Queensland Companies. I am sure there is no need to point out that our market capitalisation has increased five-fold since the start of this year. As recently as today we were rated as a superstar performer and I quote:
"Eureka Report has reviewed the performance of the top 200 stocks over the past 12mths looking for outperformers. They do exist, but they are few and far between, Linc Energy, which seeks to convert coal deposits into clean liquid fuels, has been a superstar performer rising almost 70% over the last 12mths."
Only two weeks ago we were recognised as one of the top 5 performing companies on the Australian Stock Exchange.
This leads me to recent developments and our future focus on South Australia
THE DECISION TO FOCUS ON SOUTH AUSTRALIA.
We recently announced that we will undertake our first commercial development in South Australia. This decision was not taken lightly but was made on the back of a number of important drivers.
Economies of Scale
The Arckaringa Basin is one of the largest contiguous coal basins in not only Australia but the world. The resource is so large that it will comfortably supply production of 100,000 bpd.
Infrastructure
The Arckaringa Basin has good access to rail and from rail to port facilities in South Australia and North to Darwin. The infrastructure can more readily accept the larger volumes of fuels that we can produce in South Australia.
Resource Access
The Arckaringa Basin has no overlapping tenement issues with CSG as UCG is done under petroleum tenements and Linc Energy currently holds all the Petroleum Leases over its acearage in the Basin.
It is appropriate to comment that one of the reasons that impacted on our decision to focus on South Australia: the issue of overlapping tenements.
It is interesting that as recently as May 2007 Linc Energy recognised the importance of our project for Queensland when we gained Significant Project Status. The Deputy Premier at the time and now Premier of Queensland stated:
"Underground Coal Gasification technology offers the potential to utilise parts of Queensland’s vast coal resources that are currently uneconomic to recover.
In addition Linc Energy's proposed 200 mw gas fired power stations using fuel from the UCG process would produce lower greenhouse gas emissions than conventional coal fired power stations."
Yet
- Even though Linc Energy had been established in Queensland long before any Coal Seam Gas company existed,
- Even though we have the appropriate leases to operate UCG and this has been confirmed in writing by the Government many times over the last 10 years,
- Even though we have proved our environmental credentials with over 9000 water monitoring results over a 10 year period,
- Even though we have always been in total compliance with our environmental authorities,
- Even though we were declared a Significant Project for the State of Queensland by the current Premier to commercially produce 20,000bpd of clean diesel and to generate clean power we remain concerned that the competing issues will not be resolved in a timely or fair manner.
The decision to focus on South Australia will above all else allow Linc Energy to meet our commitment to shareholders to develop a commercial UCG/GTL facility in the shortest possible time, whilst resolving the issues in Queensland. This along with other decisions will ensure that we deliver the best possible outcomes to our shareholders.
It was refreshing to see the statement from the South Australian Minister for Resource Development, Hon Paul Holloway welcome us to South Australia. He stated:
"The decision by Linc Energy to develop its first commercial project in South Australian was great news for the economy of South Australia."
The decision to move our focus to the Arckaringa Basin should not be seen by anyone as the company abandoning Queensland. We will continue to operate and expand our Chinchilla facility whilst commercial operations are developed in South Australia. The Chinchilla facility is one that we are all very proud of. It is by far the most advanced UCG field in the world. However, it is the combination of the UCG field and the GTL plant coupled with our laboratory that makes it the only such facility in the world.
Chinchilla will allow us to run Syngas that we create in any world location through our GTL plant. This will allow us to conduct feasibility studies for any location and allow us to assess the gas and to further develop our catalyst. Chinchilla will remain a world class facility and we remain very strongly committed to developing a commercial facility in Queensland.
Conclusion
In what has been a very difficult and tumultuous year Linc Energy's performance has been a standout and one that we should all be very proud. We have exceeded our expectations and delivered far in excess of the milestones we set ourselves and committed to deliver to you our shareholders. A quick summary of those achievements clearly demonstrates that we have had an amazing year.
• The bringing together of an experienced and talented executive team
- Having an employee base of over 110 staff
- Development of our own general UCG field
- Successful commissioning of the GTL plant
- The acquisition of more land within our ML at Chinchilla
- Releasing JORC statements on Pentland, Emerald, Chinchilla and the Arckaringa Basin
- Completed the merger with SAPEX
- The acquisition of additional tenements in Queensland and South Australia
- The extensive exploration and drilling program
- The entry into the ASX 200
- One of the best performing stocks in 2008
- Finalisation of the contractual arrangements in Vietnam
- Sale of the Emerald coal tenements for $1.5 billion.
I will close with a quote from one of our shareholders. Robert Hook from SG Hiscock & Company Limited who until very recently was the only Australian fund to deliver a positive return this year stated:
"We build our portfolio from fundamentals. We also take a hard look at management. We look for an ability to deliver, at or above market expectations…"
At Linc Energy we have focussed very heavily on building these fundamentals. We have secured resources, focused on a management team, and delivered on UCG and GTL.
We have moved from the small and tentative steps taken by a new and developing company, and are taking the bigger more confident steps of youth as we grow to maturity as a company. For many, the best thing they will be able to say about 2008 is that it is over. For Linc Energy we are able to say we have taken that next important step to success and that we have grown.
Disclaimer & Important Notice
The information in this presentation is not an offer or recommendation to purchase or subscribe for securities in Linc Energy Ltd or to retain any securities held. It does not take into account the potential and current individual investment objectives or the financial situation of investors. The presentation was prepared with due care and attention and is current at the date of the presentation. It contains forward looking statements that are subject to risk factors associated with the energy industry. It is believed that the expectations reflected in this presentation are reasonable, but they may be affected by a range of variables which could cause actual results or trends to differ materially including but not limited to price, currency fluctuations, geo-technical factors, drilling results, legislative and regulatory developments, economic and financial market conditions.
* Competent Person's Statement - Mr Troy Turner
The information in this announcement relating to resources is based on information compiled by Troy Turner, who is a member of the Australian Institute of Mining and Metallurgy and who is employed by Xenith Consulting Pty Ltd. Troy Turner has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which they are undertaking to qualify as a competent person as defined in the 2004 Edition of the "Australasian Code for Reporting Exploration Results, Mineral Resources and Ore Reserves". Troy Turner consents to the inclusion in the announcement of the matters based on their information in the form and context in which it appears.
^ Competent Person's Statement - Mr Tim Jones
The information in this announcement relating to resources is based on information compiled by Tim Jones who is a member of the Australian Institute of Geosciences and who is employed by Linc Energy Ltd. Tim Jones has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a competent person as defined in the 2004 Edition of the "Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves". Tim Jones consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.
Contact
Mr Peter Bond
Chief Executive Officer
Phone: +61 7 3229 0800
E-mail: pab@lincenergy.com.au
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