Ann: Takeover of Sth Australian Coal Ltd/Cash Inj, page-9

re: Ann: Takeover of Sth Australian Coal Ltd/... As a matter of fact the BCB-technology is proven by the first commercial module in Tabang, Indonesia, which has already produced briquetts matching Newcastle specifications. Actually there are issues with the dust extraction system, which was found undersized due to unexpected fineness of the dust and so the module had to be run with reduced capacity (~30%). But the dust extraction system is already subject of extension, which is expected to be finished in May or June.
Allthough it's vital, the dust extraction system is not part of the core process, but a comparably simple component. WEC's engineers have solved way more challenging issues than this.
The question is not if WEC will solve this but when.

As of cashflow, sure it will take 2 years until we see significant inflows, but WEC has a monopoly on a extremly precious, commercially available technology, which has to be priced in. You can't cover this essential fact with DCF-valuation - at least not in the short term.

Regarding the SAC-acquisition, it's absolutely irrelevant if they find more than those proven 515 Mt in the the area of EL 3386, since these are enough to upgrade coal for the next decades.
Based on current share price the takeover of SAC will cost some (32.7 shares * A$ 3.35 =) A$ 110m at a max. Exploration and development will cost another A$ 100m and finally we need say 10 BCB-modules at a cost of A$ 80m each. In total the SACL-project will require an investment of A$ 1 billion over the next 2-3 years.

Now compare this to my expectations of the economics of a module at Lake Phillipson:

extraction: US$ -10/t sub-bituminous coal * 1.35 (factor of converting sub-bituminous to briquetts) = US$ -13.5/t.

processing: US$ -6/t

transport: US$ -20/t

sales price: US$ 100/t

margin: US$ 60.5/t


With ten modules (at a capacity of 1 Mtpa each) WEC would make US$ 600m per year (or more if coal price rises) and the whole project would amortize in less than two years.
With the proven reserves of 515 Mt these 10 modules could run for:
515 Mt / 1.35 (factor of converting sub-bituminous to briquetts) / 10 modules = 38.1 years

In these 38.1 years could make some US$ 22.8 billion. Do you still think it does matter if there are 0.5 or 4 billion tonnes burried in SACL area?

As transport capacity is a bottleneck in Australia, I don't think there will ever be more than 20 Mtpa installed in SAC's area.