ft keen on whe

http://www.ft.com/cms/s/0/ea69f960-5e5f-11e2-a771-00144feab49a.html#axzz2RMyyiNzD

ADVENTUROUS INVESTOR January 25, 2013
Unconventional energy promises wild ride

Gas from coal is an under-appreciated source of alternative energy, says David Stevenson

Unlike fracking, coal gasification is not a new technology – an earlier version of it powered London’s street lamps in the Victorian era – and it has been commercially proven in South Africa via local group Sasol.
In simple terms, a developer buys the underground rights to deep coal reserves and then uses modern drilling techniques to produce synthetic or “syn” gas that can be used to fire up the turbines of a colocated power station. This is different from coal-bed methane, which produces a natural gas.

Usually, steam is used to break down the coal into its constituent parts which include hydrogen, carbon monoxide and synthetic gases. These are then piped back to the surface. Obviously, this isn’t a green technology as such – it involves coal, after all – but it’s almost certainly as green as its nearest energy rivals and it’s increasingly economic at current high energy prices.

Eastern Europe is much more promising terrain and I’m currently researching a few ideas here, but I’ve decided to buy into an alternative, truly unconventional energy source: underground coal gasification.

My chosen vehicle for this theme is Wildhorse Energy, which is listed on both the UK and Australian exchanges with the ticker WHE. Wildhorse has the enthusiastic co-operation of the Hungarian government, plus a series of licences throughout eastern Europe (especially Poland). Its directors are also in advanced discussions with local utilities which should bring a deal within the next 12 to 18 months.

Wildhorse is focusing on using synthetic gas from coal seams in eastern Europe for two simple reasons – the first is that there’s lots of it, and there’s a huge demand for alternatives to the dominant Russian supply of natural gas, and the many political complications it brings.
At the moment this a pure development project and it’ll need a lot of capital expenditure to get the project actually producing. That means either a big and dilutive fundraising or some kind of trade deal. Both options mean that Wildhorse is a risky play, like any other explorer or early-stage mining developer.

But it has one or two aces up its sleeve. The market opportunity huge, and the company has a superb South African technical team which is busy doing deals with those local utilities. I also like the look of the executive management team, which was also behind uranium investment vehicle Kalahari Minerals, sold to the Chinese last year. Its investor base also includes some very smart resource focused institutional investors.
My sense is that the markets will start to wake up to unconventional energy in Europe but soon realise that coal gasification is probably the only reliable way to go. That’ll prompt investor interest in Wildhorse, which will hopefully have supply contracts in place by then.

The share price is also underpinned by Wildhorse’s other big assets, which include a big uranium deposit in Hungary it has the right to develop. This neatly hooks into my other big long-term bet, which is that we need nuclear energy whether we like it or not. My preferred nuclear play is UK-listed uranium fund Geiger counter.

By my sums, if you buy Wildhorse you effectively get the uranium asset for free, which seems like a fairly good value play given that I think we’re all about to go mad about unconventional energy.