export or feedstock?

I have no position in ESI, at the moment.

Believe that long term value for this type of technology company is a choice between beneficiate coal and feed it to a LaTrobe valley power station (feedstock) and export manufactured black coal. (Export)

A hybrid route (feedstock to fund the plant and export additional production) is fundamentally a feedstock route as it uses feedstock to fund the plant therefore borrowings and therefore security issues for the banks.

Exergen appear to be advocating the export path.

ESI have (IMO) advocated both at different times in their history.

Monash are on a tangent (in this discussion) looking at production of fertilizer (to avoid the international swings and slides of the imported urea market).

The IDGCC consortium want to build power stations.

GPT are firmly in the feedstock camp (in the US).

Siemens are technology licensers to anyone.

Issues for the Feedstock route include:
..... Existing boilers can use up to 10-20% dried pulverized beneficiated brown coal.(source: pers con) YE 1.8-3.6MT pa, Haz 2.1-3.5 MT pa, LYA & B 5.5-8MT pa. Very significant volumes and corresponding revenues, IF IF IF ETS supports $10-20 per TCO2e (IMO).

.....The cash position of the Vic power stations. Privately owned. ETS will impair their asset values, and therefore their ability to sustain current borrowings, much less new borrowings to fund new boilers. Therefore, this is the market absent new power stations.

.....If ETS requires purchase of credits up front (albeit less than 100% of emissions) these customers will be very poor credits – therefore impairing ESI‘s ability to raise/borrow cash to fund plant to supply them.

Issues for the export route include:
.....Transport. LaTrobe-Mel. The rail route was capable of moving (about) 1.5MTpa when EnergyBrix was at full production in early 90’s. Since then rail infrastructure has deteriorated (unless you believe the Vic Gov’t brochures) reducing the number of paths. E’Brix now moves its product to Melb by B-double. Much less than 1.5MT pa. Assuming train is OK, assume the cost is the same as the old charge from V-Line. $23.86 per tonne (1992 $). Not trivial.

.....Transport. Mel-O/S. OK, where? Port of Melbourne. No handling facilities. Shallow channel. Geelong? Good luck trying to get coal handling approved at our 2nd largest grain handling terminal. Upgraded Hastings? No rail link, no channel, and no handling, so new port. And won’t that be easy to get thru the green lobby.

.....Markets. Recent major uplift in coal tonnages sent from all coal exporting countries. Even Aust, although less than Indonesia and SA (and all the marginals). So, will the markets you are exporting into be as favorable as they are now? Sure, India can take some significant tones (as per the Tata article posted in the last few days) but that will be for supply security and they will spread that over as many suppliers as they can. Students of economic history will remember Japan investing in every iron ore mine in the world in the early 60’s to trash the international FeO market to support the profitability of their steel mills, a strategy that worked all the way into the 1990’s. Are India doing the same? IMO, yes.


Conclusion.

IMO, ESI needs to get their next scale increment plant built. That is the most pressing strategic issue, and the next increment of SP value. Then we can asses if this is a new North West shelf or just another great idea that struggled under the weight of cash, competitors and completion.

F111