Commercial Pathway confirmed
• LCEP produces syngas which LCK plans to use to produce Fertiliser
• Sovereign risk in power and gas markets
Slide 12 headline says
"LCK will use Syngas to make Fertiliser products"
1. Scoping Studies complete - highest economic value
2. Cost efficiency through vertical integration
3. LCK gas production costs and volume stable vs market volatility and increasing
4. LCEP “Syngas” contains high levels of hydrogen suitable for low-cost Urea and Ammonia production to serve the currently high-priced domestic Australian market
4. Geographic advantage • Close to large demand centres
5. High value products • eg. Urea price at cyclical lows – long term price stability, forecast to improve
6. Pre-existing critical infrastructure on site – rail, road, brownfield
7. Social License - Fossil fuel to energy vs. Feed the World, supports farmers
2 x point 4s lol no doubt tinkered with the best order
MY TAKE
1. This means they are now an energy/ food company not a gas/ power company. That is surely better to manage future greenie attacks
2. Anyone able to do some math on how much Urea they can produce, price, capex, opex and when they might reveal these numbers? If this is more profitable than just dumping gas into the network it must be extremely profitable for them
3. How might this decision impact mines and operations around there (Olympic Dam, Roxby) who might have been hoping for some power from the LCK operation?
4. You would assume the SA govt knew/ knows they planned to go fertiliser/ food- easier for commercial approval
4. Incitec. Clearly LCK will be able to produce fertiliser for a fraction of what it costs IP to...if they can even find any gas after 2019 that is. LCK can manufacture and sell it cheaper than IP and squeeze them out of the market and still be immensely profitable.
To manufacture Urea manufacturers are first buying their gas (LNG or methane/pipeline) and then converting that into Syngas. My understanding is that our Gas is Synthgas/ Syngas- out of the ground. There is simply no way LCK fertiliser will not be able to be a massive profit creater at current market prices. And if 90% of fertiliser is imported into Australia the market is as big as they want to sell into.
Another way to put this is that there is no way Incitec will be able to match LCK on price if LCK wanted to squeeze them or other players out of the market. It isn't like LCK won't know what to do either- their Chinese parent already runs a fertiliser plant in China! The only question I have here is would it be cheaper to dismantle Incitec's Manus Island plant and truck it to Leigh Creek or build a new plant?
6. Why are CCCC coming down to the site? They can have their local subsidiary John Holland build this. In my opinion they are scoping this for something bigger....like doing multiple plants of this up in China? The 11 September announcement suggests collaboration and Heads of Agreement for something
7. SA govt- IF LCK offered fertiliser to SA farmers that was a fair % cheaper than the market price then LCK would be a political handgrenade to not support as a significant project for SA...never mind the $1b+ that would be spent to build the plant. It's one thing to deal with 4 whining locals and greens but another to tell 40,000 farmers the equivalent of their year's profit will be spent on higher fertiliser price because 4 people demand a dirt hole in the middle of absolute nowhere is allowed "to heal". (I can't wait until local Vic and WA greens and land councils demand all Bass Strait and West Coast gas projects be stopped so the sea bed "can heal")
8. Train line to ship to market. If only there was a heavy train line near LCK's site that could be used to transport carriage loads of fertiliser to market...
DYOR and happy hunting
LCK Price at posting:
14.5¢ Sentiment: Buy Disclosure: Held
(20min delay)