Ok. I've had this on my mind and have to put it out there:
With Sugar's contacts and statement that they're looking at US investment, what's the chances of CKK not bothering with the JV and going straight for the whole bank all to themselves?
Pilot plant, Frac test, Full-scale plant/s, offtakes.
HE helped bankroll Fortescue Metals Group when no one else would back its founder Andrew Forrest. Now, New York money man Eddie Sugar is getting behind another resources play with big ambitions, big funding needs and big challenges.
Sugar is working tightly with Liquefied Natural Gas Limited, a small Perth-based group aiming to develop a $US2.26 billion ($2.48bn) LNG plant in Louisiana that can cash in on the opportunities stemming from the US shale gas boom.
In an exclusive interview with The Australian, the usually low-profile Sugar says he sees comparisons between what Fortescue set out to do in its early days of building what is now an $18bn iron ore empire and what LNG Limited -- market cap $111.9 million -- hopes to achieve in Louisiana.
"There are some similarities in terms of size, and in terms of doing something others haven't done, but that's what entrepreneurial spirits should be like," Sugar said from his home in New York.
One advantage in LNG Limited's favour that Forrest didn't have in the early days of Fortescue, Sugar says, is a better understanding in the market of the scope of the opportunity in the LNG market.
"When Andrew did his project there was less understanding of the iron ore market and what you could do with it. There was a troika of Vale, BHP and Rio which didn't give out a lot of information on that business and didn't have to, so nobody really understood what it was," Sugar says.
"On the LNG side, it's a much clearer market in terms of what that differential is around what we (in the US) are producing it at and what you can sell it at, and how deep that market is. So it's a little bit easier for (LNG Limited managing director) Maurice (Brand) than it was for Andrew."
On top of that, he says, LNG Limited isn't facing the same levels of harassment and scepticism that was faced by Fortescue during its early days.
"I know what pressure BHP and Rio put on that project never getting done for Andrew, and I don't see the same pressure coming here (for LNG Limited)," he says.
LNG Limited and its proposed Magnolia LNG development, he says, is one of the better positioned players in the US's rapidly evolving LNG industry.
The political debate continues to rage in the US over the political, economic and environmental implications of LNG exports out of a nation that has up until very recently been dependent on imported energy. The fate of the Magnolia project will rest with the US Federal Energy Regulatory Commission, which should begin assessing early next year whether it will allow exports from the project.
"The part that's unknown is the next 15 months of getting FERC approval. Everything from a financial side should be relatively put to bed within the next four to five months, then it's a governmental process," he says. "From the government's side, I think they want these to happen because they're good for the country."
For his part, Sugar believes LNG Limited stands a better chance than most of winning the necessary approval. The site selected by LNG Limited is within an established industrial park, which will reduce the levels of environmental opposition being witnessed at projects on the country's west coast.
"It's much harder to stop this project from going forward," Sugar says.
Sugar's firm EAS Advisors has been helping LNG Limited line up funding and partners for the project. It has already helped secure a deal which saw New York infrastructure fund Stonepeak Partners commit to $US660m in equity funding.
That still leaves over $US1.5bn in debt funding outstanding, and LNG Limited is believed to be likely to bring in BNP Paribas to help it lock up the balance.
In the eyes of many Australian investors, LNG Limited's big ambitions in the US have been tainted by the company's earlier failure to deliver its Fisherman's Landing LNG project at Gladstone in Queensland.
The company was expected to develop a plant using gas sourced from Arrow Energy, but the plan fell apart when Arrow was acquired by Royal Dutch Shell and PetroChina. Subsequent efforts to source gas from other parties in the region also failed to bear fruit.
From a high of $1.83 in late 2009, shares in LNG Limited dropped to as low as 12c.
For Sugar, who was willing to help find support for Fortescue and Forrest so soon after his name had been sullied by his involvement in the troubled Anaconda Nickel venture, the difficulties at LNG Limited are no deterrent to working with the company and Brand.
"That wasn't his fault in the sense that he had gas supply with a company, that company gets taken over, and the new guys who own it don't want to do the deal," he says. "He's learned from that, he's trying not to be reliant on one group that will run gas through his facility, and in that regard he's doing it cleverly."
Americans, he says, have a greater willingness to back entrepreneurs with spotty records.
"I think that's where the Australians have a problem," he says. "True entrepreneurship is where you keep going and going and going until you make it. Whereas if one guy fails you go to the next guy, and I'm not sure why the next guy is any better than the first guy.
"If anything the first guy may have learned lessons and will be able to do it differently."
That said, Sugar says it was by no means simple to find investors willing to support Forrest's vision.
"I can tell you, finding people who wanted to back Andrew was not easy. The big boys were putting disinformation into the market via the large banks to try to get these guys to stay away."
The once-in-a-lifetime returns generated for those early backers of Fortescue was a key turning point for Sugar. The early funding he put together created a handful of billionaires, and has ensured that the doors of investors remain open to him.
Working closely with Forrest and seeing him succeed also emboldened Sugar to quit his post as a managing director at Jeffries & Co and establish his own business. "It was always in me, but Andrew definitely brings it out in you," he says of the entrepreneurial streak Forrest unlocked.
"When you look at what he was up against, you just think, 'Great, why can't I do that and build my own business?' "
CKK Price at posting:
0.9¢ Sentiment: None Disclosure: Not Held
