Sarah-Jane Tasker | September 06, 2008 http://www.theaustralian.news.com.au/story/0,25197,24301273-643,00.html
COAL-to-liquids hopeful Linc Energy stunned the market yesterday by announcing the $1.5 billion sale of its coal exploration permits in Queensland's Bowen Basin to a Chinese company.
The sale sent Linc shares soaring 42 per cent to $4.35, adding $247 million to the value of chief executive Peter Bond's holding.
Mr Bond's 51 per cent stake in Linc was worth $883 million on yesterday's closing price.
"This is huge. These deals are company-makers and you only get to make these types of deals once every decade," Mr Bond told The Australian yesterday.
"The world is chasing coking coal and this deal really is quite extraordinary. It effectively underwrites Linc Energy's GTL (gas to liquids) commercial aspirations over the coming years."
China's Xinwen Mining Group, which picked up Linc's Teresa coal exploration permits, still needs approval from Australia's Foreign Investment Review Board before the deal can be finalised.
Immediately following receipt of government approvals, Xinwen has agreed to pay 10 per cent of the purchase price.
The balance will be paid in six further monthly tranches, expected for completion around June 2009.
BBY analyst Jeremy Tobias said that provided the transaction gets the appropriate government approvals, it would give Linc the funds required to build its flagship commercial gas-to-liquids plant, expected to cost $900 million.
"The funds put a floor under the share price and it validates the company's business model," he said.
Mr Bond said the company had always planned to sell its Teresa coal exploration permits in Emerald, Queensland, and had started drilling the area recently to firm up the resource.
"We have owned the coal permits for a few years. I pegged it when I first took over at Linc and two years ago we realised it was a good asset," he said. "There was always the plan to drill out the coking coal and on-sell to underpin our gas to liquids commercialisation.
"Since we started drilling about three months ago there have been a number of people wanting to talk to us about it, but we were (determined) to get on with the drilling. But China wanted to deal and made an offer I couldn't refuse."
Xinwen produces in excess of 35 million tonnes of coal per year and has more than 30 billion tonnes of coal reserves as well as interests in a number of Chinese steel mills.
Mr Bond said early drilling results suggested the Bowen Basin permits covered a 500 million tonne resource, but he now believed there was probably more than 800 million tonnes.
With Chinese interest in Australian resources in the spotlight this year, the Treasurer's decision on this project will generate wide interest, but Mr Bond said it was a straightforward process.
"It is a greenfield site that they will have to develop. It is not the case of a Chinese company coming in and buying an Australian business," he said.
Mr Tobias said the FIRB process was a slight risk, but had obviously been discounted by the market, with Linc's stock increasing dramatically yesterday. "It's likely to be ticked off but it can't be taken for granted," he said.
Linc Energy is focused on its tenements over land near Chinchilla, where it has a pilot plant burning coal underground, using technology that originated in the Soviet Union.
The company also revealed yesterday that the Chinchilla gas-to-liquids demonstration plant was proceeding better than expected.
"The significant steps made over the past few weeks in commissioning the GTL facility have been substantial. The next step now is to add gas and produce liquids," Mr Bond said.
Atom Funds Management fund manager David Shearwood said the Chinese sale removed the massive overhang of capital raising for Linc's commercial GTL plant.
"Peter is a visionary and has put his foot on a lot of coal and has intentions to be a major player in the global oil industry," he said.
LNC Price at posting:
$4.35 Sentiment: LT Buy Disclosure: Not Held
