cgv in $444m gasification joint venture

CGV in $444m gasification joint venture in Mongolia
Tim Boreham | November 02, 2009
Article from: The Australian
WHEN a small-cap, clean-tech speccie play heralds a "major joint venture agreement" (all-caps in their announcement), we're honour-bound to take notice. After all, it's the semi-official day before the Melbourne Cup holiday, and the only other noteworthy event is midday's listing of an obscure department store.

In a spectacular example of leveraging up into the big league, Clean Global - market cap $18 million - has entered into a $US400 million ($444m) underground coal gasification (UCG) venture in inner Mongolia.

Clean Global takes a 35 per cent interest in the venture, partnering with the Beijing Yusenjiayu Environmental Protection Technology Co (YSJY), the Inner Mongolia Gu Xin Mining Co and British mob Goldbridge Clean Tech Energy.

The idea is to produce commercial gas (syngas), from Gu Xin's 1.8 billion tonnes in inner Mongolia, to be sold to a local company via a “documented offtake agreement”.

UCG involves converting the coal into gas at high pressure and temperatures, obviating the need to mine the dirty black stuff.

THE DIRT - Click here to read Robin Bromby's take on the Clean Global venture.

The JV provides for a commercial agreement with Clean Global Energy to design, operate and manage the plant, with fees payable to Clean Global “once funding for the project has been secured”.

Did we mention funding? Initially, Clean Global only has to chip in $US350,000. The JV plans a capital raising on the Hong Kong exchange of “not less than $US120 million” and debt funding of “not more than $US280 million”.

While UCG technology has been around for decades, Clean Global says its patented technology (called ‘controlled retractable injection points’) allows for greater control and efficiency in the extraction process. Whatever it does, it was enough for Clean Energy to attract the attention of these more substantive offshore parties.

The JV shows that China is taking the clean-energy quest very seriously indeed and that this will translate into serious investment dollars. Any universal move to tax carbon will accentuate these efforts.

However, UCG is just one of a number of holy-grail solutions that include coal-to-gas liquification and coal-seam methane, not to mention non-hydrocarbon quests such as geothermal energy.

Regrettably, for those punting on a quick gain, the pussy's out of the bag on this one: Clean Global shares entered a trading halt last Wednesday, after the stock vaulted 12.5 cents (150 per cent), and gained 2c on resumption this morning.

Given the scope of the project, relative to Clean Global's market presence, investors should be sceptical about this one (while keeping an open mind). It's a Mongolian manoeuvre that either will be spectacularly successful, or a case of a steppe too far.

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The Australian accepts no responsibility for stock recommendations. The author does not hold an interest in any of the stocks mentioned. Readers should contact a licensed financial adviser.