Managing Director's Report
June 2008
I am very pleased to be able to report to the Shareholders the performance relating to the financial year ending 30 June 2008.
It is now just over two years since Linc Energy was first listed on the Australian Securities Exchange. In that time, we have grown from a handful of people to approximately 90 staff members and at least 30 to 40 contractors. In addition to these, we have acquired a controlling interest in the Yerostigaz business in Uzbekistan with over 200 employees all successfully working on Underground Coal Gasification (UCG) and producing commercial quantities of gas into a nearby power station in Angren (Uzbekistan).
Since my last report, Linc Energy has developed, and commenced operating, the third UCG field in Chinchilla. This is proving to be, by far, our most technologically advanced and successful UCG operation to date. It is in this latest version of UCG that Linc Energy truly demonstrates that it is leading the world in this unique process.
Linc Energy continues to drill out the coal resource at Chinchilla. The initial estimate for this resource was 300 million tonnes. The current drilling has identified approximately 600 million tonnes, double what was originally promised, and with a revised target of 1 billion tonnes.
Linc Energy has moved forward on drilling out our Emerald area (known as ‘Teresa’) where we now have two drill rigs working around the clock to prove up what will be a significant potential coking (met) coal resource in the Bowen Basin. On the back of this drilling, Linc Energy recently announced that it has signed a Heads of Agreement with Xinwen Mining Group Ltd from China. Under this agreement Xinwen will pay $AU1.5 billion to Linc Energy to purchase the coal exploration permits at Emerald.
At the time of writing this report, the Company is on the verge of delivering on its primary focus of taking ‘stranded’ coal and gasifying it via UCG and then taking the syngas from that UCG process and feeding it into a Gas to Liquids (GTL) facility.
The Linc Energy journey over the last two years has been extraordinary. In that time we built a team that has delivered over 600 million tonnes of coal at Chinchilla; completed new UCG fields utilising our Intellectual Property (IP); and designed, constructed and is now commissioning a Gas to Liquids (GTL) facility.
The Linc Energy team members who have achieved these outcomes are simply outstanding people. These are people who are dedicated employees; they are passionate team members and they are focused on creating successful outcomes that will define Linc Energy for many years to come.
As at 30 June officially, we were still finalising the last of the details of the relevant piping and commissioning of various items on the Gas to Liquids (GTL) demonstration plant. But now just a few weeks later and at the time of my writing, we are on the verge of successfully commissioning the GTL plant and just days from producing liquids. I can tell you it will be a very proud day for all of us when I pump the first litre of diesel from the Linc Energy bowser!
This is not just an Australian-first but on the basis of UCG to GTL, it is a world-first.
As I alluded to earlier, the journey has been a very interesting one. I cannot help but think back to just over two years ago when I walked on to a bare green paddock with only a vision of having UCG operating on my right and a significant GTL facility operating on my left with a world-class laboratory sitting just behind me. And now just over two years later, that vision has become a reality and that reality is Linc Energy.
I believe all of our Shareholders should be justifiably proud of these achievements and of the people who have worked tirelessly to reach them. We have grown from a company of just over 600 loyal subscribers at the IPO to in excess of 7,000 Shareholders. An outstanding result and one that reflects how many people support the Linc Energy story. Again, I thank you for your understanding and your support.
Expanded Drilling & Exploration
The drilling program at Chinchilla has successfully proved 600 million tonnes of coal around the Chinchilla Mining Lease Application (MLA) project. The results have been very favourable and we expect drilling to continue for the coming twelve months to expand the tonnage base even further and also to define and refine our knowledge of this asset.In addition to the Chinchilla MLA area, there are two other areas within the Surat Basin that Linc Energy will explore as secondary resources to the primary Chinchilla resource. Drilling on these will start before the end of 2008 and will continue for approximately six to twelve months, effectively developing a number of satellite deposits capable of producing additional UCG gas production which can be easily piped back to Linc Energy’s Chinchilla commercial GTL facility.
As well as the Surat Basin, Linc Energy has numerous other areas of coal deposits in Queensland primarily around Pentland in the north, and the Galilee and the Bowen Basins in central Queensland. All of these areas have been drilled or are being drilled at the time of writing with the aim that they will be able to convert most of these resources into significant code coal deposits over the coming twelve months.
Linc Energy has significant coal resources at its disposal and this will remain one of the driving forces of our business that we will be focusing on. After all, it’s our large coal resources that are the back-bone of our diesel and jet fuel business plans. With nine to ten geologists on staff and an average of seven to eight drill rigs working tirelessly towards our outcomes, Linc Energy is poised for a big twelve months of resource announcements.
Completion of GTL Demonstration Facility
As mentioned in my opening remarks, the effective completion of the GTL demonstration plant and the ultimate production of liquids will be a successful milestone for the Company and one that will add significant value in time to come.Linc Energy owns and operates a Gas to Liquids facility that is approximately 70 metres long and over seven stories high. This is no pilot plant. This is an industrial facility which has been scaled down to suit our demonstration purposes. When visited by our Shareholders, there is a lasting impression of just how large and complex this GTL demonstration plant actually is. I would personally like to thank the efforts of the relevant engineers, project managers and Chief Operating Officer, Stephen Dumble and all of the GTL staff that have worked intimately on this project at Chinchilla. It is a wonderful piece of engineering and a great outcome for the Company at large.
SAPEX
In mid-June this year, most Shareholders would be aware of Linc Energy’s merger with SAPEX Limited with an offer to SAPEX of 72c per share and 50c per option effectively valuing SAPEX at $104 million. The primary driver behind Linc Energy making the offer to SAPEX was the fact that they own significant exploration tenements that are highly prospective for coal and oil and gas. It is difficult to put a target statement on just how much coal could be in the area but it is estimated to be significant. It is expected that the relevant SAPEX Shareholding Meeting and final payments to SAPEX will be completed in early to mid-October. It is a significant amount of work to complete a merger of any size and the Linc Energy team has worked extremely well to ensure there has been minimal impact on either businesses.The SAPEX merger and its aggressive development will ensure Linc Energy has one of the most extensive coal deposit targets in Australia – more than big enough to build a business around.
Committed and Expert Team
Over the past year, Linc Energy has grown significantly with approximately 70 new personnel joining the team this year alone. The majority of these new staff members are experts in their particular fields either in UCG, GTL, drilling, hydrogeology or coal technology. The quality and expertise of Linc Energy’s team is becoming a significant asset and one that will be the driving force behind our continued success. It will be the ability of Linc Energy’s team to successfully deliver on our business strategies which is going to take Linc Energy to the next level and I must say that I’m feeling more confident than I ever have of the success of Linc Energy and its vision.Increased Share Value
Linc Energy’s share price has strongly out-performed the ASX200 Index and as of 30 June 2008, we were $3.86 a share which is an increase of $3 per share and market capital went from approximately $200 million to $1.4 billion. At the time of writing Linc Energy’s share price is approximately $4.14 with a market capital of approximately $1.6 billion. It is also pleasing to note the admission of the Company to the Standard & Poors ASX200 Index from 19 September 2008. As mentioned earlier, our shareholder base has increased from 2,300 last June to in excess of 6,000 Shareholders in June 2008. Linc Energy effectively has gone from first listing at approximately $80 million to the ASX200 in just over two years – a great outcome by any measure.Investor Relations
Most investors would be well aware of Linc Energy’s efforts in communicating via email, our regular newsletter, InvestorLinc (which was launched in 2006) and our website. We also do a number of investor functions and road shows not just in Australia but around the world with Linc Energy spending a lot of time selling the Linc Energy story and promoting the business and its potential in New York, Boston, London, Singapore etc. As our investor base grows, the internet, personal visits, investor functions and the InvestorLinc publication will become even more important in ensuring that our Shareholders are kept informed in a timely fashion. Linc Energy understands just how important it is for our Shareholders to be kept up to date. They are integral to the success of our business.Linc Carbon Solutions
Linc Energy entered into a Memorandum of Understanding (MOU) and then a Joint Venture contract with BioCleanCoal with the aim of creating a Joint Venture company that can produce a solution to the processing of CO2 (Carbon Dioxide) sources. The aim is to create a bioreactor which has the ability to absorb CO2 at one end, and to produce oxygen and biomass from the other. The project name for this unit is the ‘Green Box’. I am pleased to note that the ‘Green Box’ is making good progress and that the partnership with BioCleanCoal has been going extremely well. Our Linc Energy Project Manager on the ‘Green Box’ is Mariano Minotti who is the longest serving employee at Linc Energy (other than myself) and is doing an outstanding job ensuring Linc Energy and its partner have the ability to produce this extraordinarily cost-effective and environmentally friendly diesel in the future with a very small CO2 footprint. In fact, we will aim to have one of the smallest CO2 footprints in the world. The ‘Green Box’ will become an exciting business avenue for the Company. I am looking forward to the first ‘Green Box’ demonstration unit being operational at Chinchilla before the end of 2009.Outlook
The outlook for the Company is very exciting. Indeed, you would have to say the potential that Linc Energy has is nothing less than outstanding. Linc Energy has numerous options at its fingertips to progress to our next step of commercialisation. Linc Energy is currently assessing these options to determine the first and best commercial project. This may be Chinchilla in Queensland but could just as well be the SAPEX area in South Australia. Successful construction of the commercial UCG to GTL plant is Linc Energy’s total focus.Over the coming twelve months, finalising the feasibility and engineering of the commercial plant with the aim of getting to the point that we can start to break ground in the very near future will be our total aim. In addition to that, the design of the commercial plant will be completed in such a way that it is basically a ‘cookie-cutter’ enabling easy replication on just about any site in any location.
With that in mind, driving the significant assets that we have acquired through SAPEX, and indeed how quickly we can commercialise those assets in South Australia, will be extremely important. They are truly world-class and something that Linc Energy will be pursuing aggressively.
I look forward to building on these early successes over the coming twelve months with our driving steps towards creating the first UCG to GTL commercial operation in the world and one that will take Linc Energy to its next level.
Yours sincerely
Peter Bond
Managing Director
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