Peter Bond on cyclone-damged Dunk Island
Mr Bond’s home on the Brisbane River at Fig Tree Pocket
Linc
Peter Bond on cyclone-damged Dunk Island
Mr Bond’s home on the Brisbane River at Fig Tree Pocket
Linc Energy investors this week face a tough choice: consign the one-time oil and gas market darling to the annals of history alongside the wreckage of many similarly promising ventures, or keep the struggling firm afloat by delivering it into the hands of a small number of shadowy hedge funds.
Just four years ago, things were very different. Thousands of mums and dads and more sophisticated investors were encouraged by Linc’s founder, Brisbane business identity Peter Bond, into investing in Linc by its promises of turning hard-to-extract coal deposits into a lucrative supply of fuel.
Despite bold claims and rapid expansion, the company has yet to produce any large quantity of fuel, and the business once worth $2 billion is now barely valued at $40m. Instead of delivering rich returns, the company owes its financiers more than $700m. At the beginning of this year, it had just $5m in the bank.
But while many of Linc’s investors struggle to come to terms with the hundreds of thousands of dollars they have lost, Mr Bond, 53, continues to live it up with multi-million-dollar properties in Brisbane, a luxury island hotel development in the Great Barrier Reef, and an investment portfolio.
It’s a long way from Wollongong, where Mr Bond began his career at BHP’s Port Kembla plant, later driving trucks and making his first million sorting discarded coal.
Mr Bond oversaw an aggressive expansion of Linc’s mining operations, with the promise that a largely untested technology known as underground coal gasification would allow the company to make money from reserves left untouched by larger firms.
As Linc chief executive in 2008, Mr Bond heralded a $1.5bn deal to sell the company’s Queensland coal exploration permits to a Chinese mining giant. Despite repeated assurances the deal would be signed within week, it never was.
Two years later, Mr Bond announced the sale of coal deposits in the Galilee Basin to Indian billionaire Gautam Adani for what was claimed could be up to $3bn. Since then, Linc has cashed out of its royalty arrangement, taking home just $655m in total.
Richard Shepherd was one investor who was attracted by the sales pitch — Australian innovation, proven technology, “and that commercial opportunities were imminent”.
Instead, Mr Shepherd lost $60,000 as the company’s fortunes dived.
“For three years I had the investment but nothing was commercialised, (and) the company was just moving from one unfinished opportunity to another, all of which involved expenditure which it couldn’t afford,” he said.
Evan Lucas, an analyst for IG Group, said the speculative nature and compelling story behind the technology made it “very much loved” by his clients.
“Oil prices were substantially higher and the idea was to use this convoluted and complex process to convert oil to jet fuel and coal to liquid energy, it was an incredible story and at the time it made absolute sense in a high priced oil market,” Mr Lucas said.
“The question is whether we were actually listening to a story of the science being too good to be true and whether this was something that could actually be brought into fruition.”
During the boom years, Linc made numerous claims about developing fields in Australia — where it said it could produce a million barrels a day of oil for a generation — Asia, Europe and in the US including Alaska, which it described in 2010 as a “short-term revenue opportunity”.
To date, Linc has been unable to commercialise UCG technology, with its use limited to a Khrushchev-era former Soviet facility near the small Uzbek town of Angren.
Worse, oil prices have collapsed 70 per cent since reaching $US107 a barrel in 2014, leaving hundreds of resource firms heavily indebted and with no way into the black.
But it was in early 2013 that Linc arguably made its biggest misstep. The company issued $200m in convertible notes to a number of investment funds — which can be exchanged for shares — and which are due to be paid in April.
With no cash, Linc’s new chief executive Craig Ricato has suggested a change: delay the due date until 2018, but slash the cost of converting the notes to shares, once $1.33 a share, to just 10c a share.
It is unclear who the ultimate holders of the convertible notes are, but it’s expected a significant proportion are held by just two hedge funds.
One is the Hong Kong-based BFAM Partners, led by former Lehman Brothers managing director Benjamin Fuchs; the other Taconic Capital Partners.
If the hedge funds choose, they could for little cost convert their notes into the largest block of shares in Linc, effectively taking control of the struggling miner.
“The amendments to the convertible notes are specifically designed to encourage conversion into equity,” a Linc spokesman said.
The only reason for shareholders to vote in favour of the amendment is because a vote against it will “finish the company”, according to Mark Harrison, another investor.
“The only good thing is that Peter Bond won’t own 40 per cent of the company any more,” he said.
“It’s been $300,000 down the drain now based on all the promises of what was going to happen, all the good times that were coming.”
Mr Bond told The Australian that like other oil and gas companies, it was global resources prices that pushed Linc into the parlous state it finds itself.
“The odds are stacked against you; at $US100 (a barrel) you can make it work, we’re all disappointed because we haven’t quite been able to kick it home in the time frame we wanted, but we didn’t have a straight run at it, nobody did with the global financial crisis, a government telling us there would be a mines tax, the euro crisis, oil prices going up and down,” he said.
Mr Bond is scathing about advice he was given to shift the company’s listing from Australia to the Singapore Stock Exchange, which Linc said would help attract long-term investors and raise capital.
Instead, Linc shares crumbled, falling from around $S1.20 in 2013 to close around S6c last week.
“You as a leader either reject or accept the advice, you try to be a strong leader and the definition is not just accepting everything, it’s running with your own game plan and your own vision,” Mr Bond said. “If you accept the advice, you can’t blame the genius giving you the advice, (but) mate, all bankers and advisers are essentially various versions of real estate agents.
“A large portion of what they’re telling you is based on their own agenda and their own relevant bonuses, and you have to weigh that in context and sometimes you become a victim of that.”
But while drama continues to engulf Linc, Mr Bond has moved on.
The Bond family lives in adjoining mansions in the affluent Brisbane suburb of Fig Tree Pocket.
The first was purchased in 2008 for $9.5m, and has a seven-car garage and a 12-seat cinema, while a second house was added in 2010 for $3.75m.
Mr Bond has also sunk $20m to convert a cyclone-damaged resort on Dunk Island off the coast of far north Queensland into a luxury spa retreat after buying it for $7m in 2011.
Through his private holding company ISNY, Mr Bond also controlled development land in the Newcastle suburb of Jesmond, and recently sold the Redfern Post Office building in inner Sydney for $2.6m.
Another luxury waterfront property, in Sydney’s Watsons Bay, was reportedly sold by Mr Bond for $4.7m in 2014.
There are also investments in listed companies, including London-based PowerHouse Energy, in which Linc also has a sizeable holding.
Despite the bearish outlook, Mr Bond said Linc’s technology and deposits could still be monetised once oil and gas prices begin to rise.
And some shareholders have made good returns from Linc, he said. “The company has been floated for 10 years, what investment cycle do most people work on? If people sold out at a reasonable investment cycle you would have done extremely well.”
