agm update

A collection of points from the agm in no particular order:
apologies for the formatting

* company is working through how aggressive it will be in development. Will see how the options conversion goes and the subsequent level of funding that they have
* need to balance aggressive growth with capital preservation
* CXY is likely to be a the forefront on the UCG business on a global basis
* 100% confident in the ability of our tech partner Ergo Exergy
* Power generation is the main development. Will move into GTL/Petrochemicals later down the track. Len says that the technology for both of these is more long term and needs to be proven on a commercial scale
* The real skill to UCG is the ability to up scale the simple process of drilling 2 holes (air down, gas up). Believes that our team is ideally placed in this regard
* UCG projects have minimal environmental impacts – little above ground disturbance and below ground the cavity will “operate” in the same way as a conventional mine – no major risks
* Pilot burn scheduled in June/July 09 – 100% confident of the success given the other trials he has been at Chincillia and in the USSR which had Ergo involvement. The delay with the trial burn was caused by the procurement lead time on the gas clean up equipment. CXY does not want to have a trial burn for the sake of demonstrating that they can, but to demonstrate that they will have a product capable of being used to fire a gas turbine. Imo this is a very significant statement.
* Ergo worked on the only UCG facility in the world at Angren, Uzbekistan, which has a peak capacity of 150MW. The Ergo team, as well as at least one of our direct employees is from the USSR or has at least worked there
* Thar Coal – approvals cleared with an award “weeks away”. This is a very significant area
* The COK agreement allows use to explorer all COK tenements and use those suitable for UCG application for the cost of reimbursement of COK’s exploration costs. They have a massive area in Qld, without calculating it, it would be 20-30 times greater than our tenements
* Ergo has confirmed the suitability both in scale and quality of the coal at Kingaroy for a 400MW station over 30 years
* All plant for the trial burn is ordered or has been out for tender – refer previous point that they want to run a trial burn of significance. “There is no point igniting the trial burn until the equipment is installed on site
* 400MW power station – capital costs $0.5B in 2 stages, revenue pa $150M, net cash flow $80pa. The station will power up to 400,000 homes. Stage 1 – 200MW starting in 2012
* Vic Brown Coal – delays have been caused by very difficult to access data, but one area of interest is looking very significant. Would give great certainty to Vic energy supply needs for years to come – and a 40% reduction in CO2 emissions!
* Pakistan – needs power but a country not without risk. Len visits Pakistan regularly and thinks the risk is somewhat lower then most think. They need power!! Karachi has 8-10 hrs of black out per day. This is a long term project for CXY (given that Kingaroy is 2012 – long term may be 2020??). Also will be capital intensive and with sovereign risk would be difficult to get away in the current environment anyway, but a huge field – circa 1 billion tonnes
* Differences between CSM (5% recovery) and UCG (70-80% recovery). CSM needs 15 times the surface area for the same energy capacity. He went on at some length about the risks of the Qld government – thinks that it is a non issue “in principle” as both can co-exist very easily (especially given the vastly reduced land area required). In practice however, “we will wait and see”.
* Stated that UCG is not new with the chinchilla trial in 1999, but that was before the CSM companies took UCG seriously. They are now fighting hard to protect their respective commercial positions. Martin Ferguson has signed onto the UCG path as a way forward for the future which may provide some govt impetus to ensure that the Qld govt do not get bullied too much by BG. All in all – nothing certain with the Qld govt but lobbying to ensure that they don’t get rolled on CSM company advice only.
* The increase in natural gas prices has made the relative advantages of UCG better
* Environmental – UCG 25% less CO2 to black coal and 40% less to brown coal – should help us tap into the climate change push as well
* Today’s announcement is very significant – perfect long strike coal seam at ideal depth. Initial drill holes (with extrapolation) – estimated 800 Mt – based on a 50% continuance of the assays results – effectively a target of 1.6Bt
* DI investment – they are committed, but as released yesterday, other parties are also interested in coming on board. Len mentioned that some of the parties are sitting on mountains of cash, so funding of a viable project should not be an issue (my words). CXY is consulting with DI to keen them abreast of the advances by these other entities.
* Any option funding shortfall, may be placed to DI immediately under the 15% rule if the gap in funding is substantial enough to affect the project. Otherwise it will be rolled into the financing arrangements already in place
* Succession planning – Len is not ready to go “just yet”. Imo he will be around for quite some time. He is confident however that the team in place is the right one. Very difficult to find staff with the right experience in this area so he has progressed cautiously on recruitment and doesn’t want to have too many staff to quickly


All in all, a positive meeting – the 2 big issues – funding and political risk. Funding will take care of itself if the technology is viable, which it is increasingly looking likely and with DI signed up and 4-5 other parties in the wings that can go in with DI or as an alternate if they fall over then this looks good imo.

Political – who can tell with the Qld govt but non of our leases are overlapping with the CSM leases so this puts cxy in as lower risk as possible of interference on this front.