Carbon Energy Ltd joint venture receives US$10M on path to...

Carbon Energy Ltd joint venture receives US$10M on path to commercialisation - * (AU)
Carbon Energy Ltd joint venture receives US$10M on path to commercialisation

Monday, September 26, 2016 by Proactive Investors

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Carbon Energy Ltd (ASX:CNX) has reached a key milestone for the development of its China joint venture with Beijing JinHong Investment Co. Ltd by receiving an initial US$10 million payment from JinHong.

The $US 10 million is the first required milestone payment under the joint venture agreement that will see JinHong contribute a total of $US 30 million towards the development of a commercial demonstration project.

This will support Carbon Energy as it looks to commercialise its underground coal gasification (UCG) technology.

The joint venture aims to develop a vertically integrated gas company in China.

Kerry Parker, managing director, commented: “There is considerable demand in this market for advanced coal technologies.

“The joint venture with JinHong ideally positions Carbon Energy to capitalise on this demand.”


Joint venture update

Carbon Energy and JinHong are actively working towards finalising discussions surrounding the joint venture (JV) securing an exclusive licence to the company’s technology and intellectual property in China.

Carbon Energy and JinHong are actively working to resolve these matters in the short term.   

Both Carbon Energy and JinHong acknowledge that this has caused delays in commencing the JV’s demonstration project and accordingly both parties are seeking to resolve these matters quickly.

Meetings in Beijing during the course of the last week have enabled these matters to be progressed.

With the initial funding now in place, the JV will assess its shortlist of suitable projects.  

Carbon Energy will provide technical and design services, supervision and training for all JV projects, and other agreed required services under a technical services agreement.


Refinancing

Carbon Energy is actively working towards the re-financing of the company’s convertible with the Pacific Road Group which matures in early 2017.   

The company has recently appointed PriceWaterhouseCoopers and Magma Capital to assist with this re-financing.  

Further updates will be provided by the company in the coming weeks.


Analysis

The US$10 million payment represents a significant step forward for Carbon Energy as it looks to commercialise the company’s keyseam technology in China.

By validating the technology in a commercial demonstration project, Carbon Energy will look to create a vertically integrated gas business within China, resulting in the development of a portfolio of projects.

The size of the coal and energy market in China together with the strong demand for lower emission coal technologies makes this a compelling opportunity for Carbon Energy.

Additionally, supportive macro drivers, such as the emphasis on the industry in the Chinese Government’s 13th five year plan, are underpinning the expansion of China’s UCG industry.

The company is at the forefront of the UCG industry within China highlighted by its participation in the formation of the UCG research centre.

This positions Carbon Energy well to interact with potential collaborators and play a role in policy formulation.

The share price is up 20% year to date, currently trading at $0.016 per share.

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