could the geostar deal be back on the table

With all that is happening behind the scenes both with ESI and the industry I thought I’d ask Con a few probing questions.

Although brief, IMO the Question 2 response could hold significant implications if Geostar are involved again as it is what made the SP jump to well over a $1.00 in 2006……

Question then response from Con:

Question 1
At the AGM it was mentioned that ESI does not intend to chase brown coal reserve(s) but rather license its technology out. It was also indicated that ESI pellets could become one of Victoria’s biggest exports. With this in mind and given the anticipating Govt involvement I am wondering how you intend to provide long-term security to ESI’s offering if no secured interest is actually obtained in the most important asset being a large brown coal reserve? My point I make is that BHP’s value is not so much in the technology it currently uses (or will opt for in the future) but the resources they have access to in the ground. Is it ESI’s intention to compete on technology alone?[Con Galtos] BHP has been in the business for a very long time. The have a number of different divisions and it would be unfair trying to compare ECT to BHP. However, approaches have been made to the Victorian Government for a mine. This process will take far too long.

Further to this and depending on which report you read experts suggest around 39 billion tonnes of recoverable brown coal is present in Victoria and that powerstations of Yallourn and Hazelwood (particularly) have reserves to last only a bit after 2030. This raises the question over a presumed reluctance by power stations to share their limited reserves with ESI in any potential partnering. It also raises the question over existing and future exploration license implications. Again, what long-term security measures does ESI plan to implement to ensure that it receives a constant supply of brown coal to process for export or domestic consumption?[Con Galtos] Negotiations are on foot with a number of coal mine owners.

Question 2
Is ESI considering a review of the 2006 MOU with Geostar’s lease of some 10 billion tonnes or a similar JV opportunity?[Con Galtos] We are talking to every one that has in the past indicated an interest in the technology.

Question 3
At Maddingley there is an apparent brown coal reserve of 40 million tonnes plus access to adjoining reserves of between 200-300 million tonnes. Given the already substantial investment in the pilot plant is it foreseeable that this will be a future site for commercial processing?[Con Galtos] The known reserve at Maddingley, I am told, is over 100M tonnes, plus other market areas. The only commercial future processing in Bacchus Marsh will be that of Matmor , when the time is right.

Question 4
The use of Saleforce features in the Commercialisation power point presentation. My experience with Salesforce is that it is better suited to when you have several thousand customers rather than approximately a couple of hundred powerstations being targeted. Just wondering why saleforce is the chosen tool? ie is it for reasons of going global.[Con Galtos] ECT has to prepare for all eventualities.


My comments to Con’s responses:

Q1 The intention on my part wasn’t to draw comparison to BHP-that’s stupid. My point was where the value (and control) lies with companies competing in the resource sector. In the 2007 prelim final report ESI states that they were pursuing a Victorian mining license. Looks as though this plan has been shelved but Con’s further response confirms what many have suspected that ESI’s direction is to partner with coal mine owners.(which may not necessary equate to powerstation mine owners but I’d be very surprised if it didn’t)

Q2 Why could the Geostar deal be back on the table?

1. First of all Con didn’t rule it out.
2. Geostar fits ESI best, would be the most logical contender and were the main party that indicated interest in ESI having previously signed an MOU.
3. His response implies there’s a very good chance ESI and Geostar are in discussions as we speak.
4. ESI has given up obtaining a Victorian mining licence and looks set to pursue partnerships with existing mine owners and further more ESI know they need to secure a large reserve or several smaller ones.
5. ESI was not the one that pulled out in 2006 so if they are on speaking terms again as indicated by Con’s response it means Geostar’s door is fully wide open to do a potential deal.
6. As each party is already familiar with the terms a deal most likely could be fast-tracked.
7. The 10 billion brown coal reserve hasn’t exactly gone walkabout.
8. ESI is in a better commercial position than when the MOU was signed approx 18-21 months ago. Everything is proven which provides a big safety net and brings the comfort factor up for the Geostar guys.
9. On the matter of licenses, Geostar need to do something as I also believe and correct me if I’m wrong that the Victorian Govt passed a law that a licensee cannot not maintain a license if it has no intention to mine-don’t rely on this as I would need to confirm…..

Q3 Matmor yes, Coldry no at Maddingley-fair enough. Brown coal reserves are non Jorc compliant hence the discrepancy when quoting brown coal reserves in Australia.

Q4 If anyone is familiar with Salesforce software tool then you may agree that it’s a bit strange for commercialising ESI’s purposes. Definitely no biggy though.

Timeframe wise with everything that is happening (we know they have deals cooking) IMO I don’t think it’s unreasonable to expect the BFS and the associated first deal released to the market sometime in the 3rd quarter.

Cheers ….As always DYOR