why has cxy lagged behind the others, page-52

Littlemak

It is good to see you being less personal in the last few posts ... imo it is possible to rationally argue ucg investment cases for or against without getting upset.

LNC is the only one of LNC/CNX/CXY that has any sort of basis to support it's mkt cap ... the potential value of several surplus mineable coal assets ... if those sales fail to materialise then at the moment, LNC is over-capitalised imo.

From memory, CXY have raised $7mill at an opportunistic 14c, abt $5mill from having abt 100mill 5c options exercised, abt $4mill at 6c, abt $8mill at 8.25c and possibly a further $6mill at 8.25c .... thats about $30mill in all for about 390mill shares. That money will have funded the company from early 2007 to late 2010 for an average annual spend of just under $9mill.

Shares on issue will have increased from about 370mill (+about 180mill 5c options) at Jun 07 to about 818mill after the current spp, which represents a dilution on the Jun 07 expanded capital base of about 149% (818/(370+180) x 100).

By the end of 2010, CXY should have a commercial 200MW power station project ready to construct and bring on line by about 2012/13, subject to funding which may range between $250-300mill or thereabouts. They will have conducted a successful ucg pre production burn, obtained turbine manufacturer guarantees based on demonstrated syngas quality, prepared bankable feasibility for Kingaroy, significantly advanced 2nd and 3rd ucg commercial projects, tied up access to future suitable coal assets of COK and have led the way through the mine field of regulatory approval in Qld.

The above story isn't overly sexy, but it is solid and there is a lot of future leveraging and positive cash flow at stake. Sure I wish the $30mill could have been raised with less dilution, but in my opinion, significant derisking and shareholder value will have been delivered for that average annual spend of $9mill over the preceding 3.5yrs.

Paralleling the above:

# LNC have gone from 321mill shares on issue at Jun 07 to about 473mill shares currently, which represents a dilution on the Jun 07 capital base of 147%. During this time they have raised something like $150mill for an average annual spend of abt $50mill to the latter part of 2010 (excluding share based purchases during that period). Current funding may or may not be sufficient for the next year or so depending on whether one or more of the coal assets sales go through. Currently, there appears to be no tech ready, planning ready, funded commercial ucg project to rollout and it is reasonable to assume such a situation could be 3-5yrs away.

# CNX have gone from 253mill shares on issue at Jun 07 to about 570mill shares currently, which represents a dilution on the Jun 07 capital base of 225%. During this time they have raised something like $71mill for an average annual spend of $22mill to the latter part of 2010. Current funding will need to be topped up before the end of 2010 in order to construct a sub-commercial 20MW power station that to be fair is also trialling CCS with ZeroGen, the costs of which could range between about $40-50mill. At some future stage, planning/development has to be accelerated and timelines nominated for commercial scale power and fertiliser projects, so close to 2013/14 could be a reasonable assumption.

Summarising the period from Jun 07 to about 12 months from now approaching the end of 2010:

# CXY will have spent about $9mill/yr and diluted its expanded capital base 149%.

# CNX will have spent about $22mill/yr and diluted its capital base 225%.

# LNC will have spent about $50mill/yr and diluted its capital base 147%.

and as I understand it:

# CXY should be ready or closely so to construct a commercial 200MW syngas fuelled power station by say 2012/13, subject to regulatory approval and of course funding.

# CNX should be ready or closely so to construct a sub-commercial 20MW syngas fuelled power station though out say 2011, subject to regulatory approval and of course funding ... and has yet to set timelines for its syngas technology and projects for ucg commercialisation beyond that ... but 2013/14 seems a reasonable minimum timescale imo.

# LNC may or may not have sold one or more surplus coal assets, may or may not need additional development funding, and might have announced a timescale for commercialisation of its developing syngas and GTL technology and/or a less ambitious power station project ... but 2013/15 seems a reasonable minimum timescale based on announcements to date imo.

The fundamental difference between CXY and CNX/LNC imo is that CXY believe they have a proven commercial syngas production technology via Ergo Exergy and the ongoing costs of that technology are factored into their selected projects, Kingaroy in the first instance. However, both CNX/LNC are developing their own syngas production technology and commercialisation options and neither have been prepared to state unequivocally that they have yet arrived at that point.

So to me, ucg commercialisation is still a game of chess with plenty of tricky and unimaginable moves ahead. All that can be said with confidence is that the three current major players are playing different games. Imo, it is too early to tell whether a largely proven syngas production technology such as that provided by Ergo Exergy (CXY) will prevail in the short and/or long term over the developing syngas production technologies of others (LNC and CNX).

In the meantime lets not treat ucg companies on this shares forum as one might treat AFL or NRL teams in the national comps ... no current ucg company deserves to be despised like say Collingwood or Manly lol.

Cheers e1
Dex