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Source: http://www.proactiveinvestors.co.uk/companies/news/49283/cougar-energy-restructuring-with-creation-of-coal-asset-vehicle-49283.html

Cougar Energy (ASX: CXY) is seeking to unlock the value of the company's assets with the creation of a separate, wholly-owned company to hold its existing non underground coal gasification coal assets.

The new Kandoman Resources will initially hold Cougar's Wandoan and Mackenzie tenements in Queensland that have a 360 million tonne thermal coal resource in the Surat Basin and a PCI coal Exploration Target of between 120 million and 170 million tonnes in the Bowen Basin respectively.

“This means there will be two distinct business streams of UCG (in Cougar Energy) and non-UCG energy (in Kandoman Resources), opening up the path for Cougar Energy to become a truly diversified global energy company,” managing director Rob Neill said.

“This diversification ensures that we are not relying on a single business stream for future success, we are providing better market exposure to the true value of Cougar Energy.”

Neill added the new structure will allow shareholders and potential investors a chance to benefit from the commercialisation of UCG in Asia and also share in the added value that Kandoman provides.

“We can now offer three different levels of investment: participation at the listed company level to share in the success of a diversified energy company; a wider resources play by participating in the value upside of Kandoman Resources; and the opportunity to get involved in specific exploration projects,” Neill said.

Rationale

Cougar made the decision to set up Kandoman after completing a detailed strategic review of its business model.

This found that the company held two wholly-owned coal assets in Queensland, which Neill believed could be the subject of specific actions to capitalise on their value.

While the coal asset divestment process announced on 17 August 2012 is continuing with strong interest from various parties, Neill believes that a divestment of the assets as they stand today might not maximise their value in the current market.

The value of Wandoan could potentially be increased with infrastructure build up while a drilling program to establish a JORC Resource would improve the value of the Mackenzie tenement.

In addition, Cougar's pursuit of coal prospects in Indonesia, China and Mongolia that have the potential for UCG development have exposed it to a range of non-UCG energy investment opportunities that could add significant value to the company.

This includes the Tuv Aimag project in Mongolia that has a Resource of 504 million tonnes of thermal coal.

The 13,093 hectare project is located 170 kilometres southwest of the Ulaanbaatar.

Road ahead

Along with the restructuring of the company, Cougar has also mapped out its strategy for the next 12 months.

For its UCG operations, the company is seeking to establish its first commercial project in Indonesia under its agreement with PT MedcoEnergi Mining.

This will initially involve the development of a 30 megawatt power plant using UCG gas as feedstock.

Cougar will also continue its partnering initiatives in Indonesia and Mongolia, where it had just reached a Memorandum of Understanding with Mongolia focused Hulaan Coal Corporation to assess its coal assets for UCG development potential.

It has already undertaken a preliminary review of two coal areas with a combined resource in excess of 500 million tonnes of thermal coal.

In China, the company will seek to review suitable coals with a state owned enterprise.

Kandoman will focus on securing funding for Mackenzie JORC drilling and the acquisition of Mongolian coal assets.

It will also start a Pre-Feasibility study for Mackenzie once a Resource is announced; evaluate opportunities for acquisitions; and prepare for a possible spin-off from Cougar.

Analysis

With a market capitalisation of A$7.6 million, and a re-set of the company. Cougar is moving quickly to unlock intrinsic value for investors. With change comes opportunity for value creation.

The identification of a resource and the decision to develop a UCG project; the defining of a JORC Resource for the Mackenzie tenement; and the establishment of a commercial project in Indonesia are some of the notable catalysts for a sizeable uptick in the company’s valuation.

Cougar's restructuring will also provide a clearer strategy for unlocking the value present in its assets while its MoU with Hulaan earlier this week demonstrates that the company’s focus on Asia away from Australia is starting to bear fruit.
We consider that the "new" re-potted, re-set of Cougar is a major step forward and actions taken to date by new MD Rob Neil are on a path to re-rating of Cougar.