mou in victoria, page-21

Shatskaya – Clearly you are very well informed. But I won’t be unless there’s information about it I can access. Equally though it would appear on that criterion the ONLY successful UCG project (Angren) is in lignite.

Yes I agreed that the carried interest possibility would mean CXY puts up all the funds. But if that’s a 30% carried interest it makes a mockery of the other two options – MLM would have no motive to contribute to expenditure and could suffer no dilution. In the absence of better information I suggest it’s a 10% carried interest. If so, then I suppose in deciding whether to contribute, COK are looking at putting up 30% of the funds for an extra 20% of the project. I suppose they’d have to be persuaded it was a startling opportunity to do so and we should work on the assumption they’ll sit back and just take their carry. So I agree with your finance requirements.

Also agreed the gas will be flared for a while before building the power station. Long enough to give good confidence (and indeed to raise finance, and get stuff ordered), but surely not for anything remotely approaching 3 years. 3 years is “may as well keep it ticking over and gather data whilst one of the toughest periods ever for coal prices means nobody’s interested”. (BP statistical review gives only 5 years in 91-06 when steam coal CIF Japan averaged
Also agreed it would be disappointing if Linc’s demo plant slipped as far as Mar/Apr 08 when CXY expect to ignite their burn. But what will that prove? It’s far too small to generate cashflow or be any kind of economic landmark. People have been doing Fischer Tropsch coal to diesel for 65 years, Linc have 3 years of gas composition data. Surely they aren’t planning to innovate in the syngas to diesel part of the process when the elephant in the room is getting the UCG going reliably with their techniques in sufficient scale with reliable gas characteristics. Mind you, the discussion is making me think I’ve been a bit harsh on them. Its budget was $6m which is small compared to the capex envisaged and I’m sure there are things to learn from its operation.

The other thing to bear in mind in a comparison is that, depending how you count, Linc is about 6 times more expensive than Cougar. My comments are always in that context. If Linc was available at a diluted enterprise value of $35m I’d be buying them too. But at $220m one needs to be more discerning.

(Boswell – I think the chap here with real knowledge is Ptolemy. I’ve only been interested in the field for a couple of months).