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FEATURE

Week's Feature:
ESI: TRANSFORMED COMPANY HAS WINNING TECHNOLOGIES FOR BROWN COAL, STEEL, AND TRANSPORTABLE ENERSLUDGE UNITS
By Jenny Prabhu and Gerald Stanley

Environmental Solutions International returning to the boards on January 19 this year after being put into receivership in November 2004, is a transformed company.
Always respected for its world leading Enersludge technology, the company now also has a fully developed patented technology with enormous potential for Victoria's brown coal deposits - a technology fully developed by Asia Pacific Coal and Steel Pty Ltd (APCS) now a wholly owned subsidiary. The patented Coldry Process, a low cost process that dewaters brown coal in a mechanically simple and economic way.
This means that Victoria's abundant high moisture lignites, found in the Gippsland Basin, Latrobe Valley, Anglesea and Bacchus Marsh regions can be converted into stable, high energy, low moisture transportable pellets that are suitable as a high quality feedstock for use in the conversion of coal to oil, coal to hydrogen and power generation.

Technology to reduce brown coal pollution a huge benefit
Victoria has the world's largest deposit of brown coal, up to 330 m thick and estimated at 394,000 million tonnes in the Latrobe Valley alone, apart from smaller deposits at Bacchus Marsh, Anglesea, Wensleydale and Lal Lal.
The Hazelwood power station that relies on brown coal deposits is described as one of the most polluting power stations of the world's major industrialised countries. Hazelwood alone produces 9 pct of Australia's total Co2 from electricity generation and is said to produce more Co2 than Victoria's entire fleet of 3.6 million cars.
Some 30 pct of Australia's greenhouse gas emissions are currently put down to the use of brown coal, a major contributor to Australia's status as the second most polluting nation in the world.
For wet brown coal dependent power stations such as Hazelwood in the Latrobe Valley, between 10 pct and 20 pct of the enhanced energy pellets can be used as a replacement for existing wet feedstock, reducing CO2 emissions between 3 pct and 8 pct.

*First orders have already been received for the APCS brown coal pellets - from Singapore.

*Meanwhile the company's Matmor process mixes wet coal with low grade (30%) unmarketable iron ore to produce high quality steel at low cost.

*The Coldry Process enables the Enersludge technology to be made into transportable units.

*Other applications include the use of brown coal and sand to make high grade fertiliser.

The share market has not been slow to appreciate the value of the new ESI, with its share price skyrocketing upwards from 14c to over a dollar since it re-listed.




The strong commercial potential of the Enersludge renewable process has led to Securities International Ltd (SIL), ESI’s banking advisers, accessing US Medium Term Note investors. ESI has signed a mandate with SIL to procure a funding agreement to provide up to $US100 million to finance the first stage of the global rollout.

ESI announced today that it has reached agreement in principle for full scale commercialisation of its technologies in the Gippsland Basin and that this was to be fully funded by the third party as the Company has stated that they will not be required to raise capital for this purpose. These proven technologies have enormous scope for profits - producing environmentally beneficial dewatered brown coal, steel and other metals, fertiliser, and sludge into energy - and funding, if required at some stage, at a time when the world (as well as Australia's superannuation industry) is awash with liquidity should not prove an unsurmountable problem.

ENVIRONMENTAL SOLUTIONS INTERNATIONAL - A SNAPSHOT

Environmental Solutions International began life as a subsidiary of a diversified small company, Campbell Group, headed by Chuck Campbell which listed on the Perth Second Board in 1985.
The Enersludge technology was developed by the late Professor Bayer at Tubingen University in Germany in the mid 1980s. The Bayer lab scale technology was originally sold to the Canadian government before being purchased by ESI in 1989. Over the next 5 years ESI in close cooperation with the inventor, Prof Bayer, embarked on a comprehensive development of the technology. Between 1990/1993 ESI had a 50/50 partnership with BHP, developing the oil from sludge (sewage) technology.
In 1996 Enersludge was awarded its first order, from the Water Corporation of Western Australia, completed in 2001. Soon after ESI won a second contract for a pilot demonstration project to process waste sludge from tanneries in Europe and Brazil. The project was funded by the German government and included 2 years of tannery sludge testing/demonstration.
Since then, a much simpler and more robust design, based on not condensing the oil but combusting the hot vapors has been demonstrated at a 1 tonne per day pilot plant in Germany.
A series of lower cost and more flexible second generation designs are now ready for market.
It is the only technology in the world that produces oil, similar to diesel from sludge which can be used to generate electricity. Ash, also a by product can be substituted for aggregate in concrete.

The technology was ahead of its time - neither in the early 90's or indeed currently has the need for reclaiming the vast and ever growing problem of sludge been seen as urgent - apart from the comparatively low tech recycling of "grey water".

The Western Australian government had funded a commercial scale demonstration plant for the Enersludge technology at Subiaco. Closure of the demonstration plant for reasons not relating to the technology, was followed by the appointment of a Receiver & Manager by the principal creditor, the Commonwealth Bank, on November 17 2004 followed by the appointment of Voluntary Administrators on November 22 2004.
In January 2005 the company's water treatment design and construct business was sold leaving only minor residual assets and the Enersludge technology.

After ESI went into receivership the right to use of the ESI names, words and trademark "Environmental Solutions International", "ESI" and "Environ" were acquired by Tenix Alliance in December 2004, (a law suit is still looming which, if the worst came to the worst would mean ESI changes its name and ceases to use the trademarks).

Enter Asia Pacific Coal and Steel Pty Ltd - a marriage made in heaven
Salvation for ESI came in the form of Asia Pacific Coal and Steel (APCS), which had developed a technology based on the Maddingley Brown Coal Mine in Bacchus Marsh which ESI acquired by way of a reverse takeover, offering 16 million shares in ESI at a deemed value of 10c per share.
APCS not only had a viable patented technology for dewatering and pelletising brown coal, but, married to the ESI technology, enables transportable ESI units to be sold.

The Technologies
APCS was incorporated on October 28 2004 to commercialise its licensed patented Coldry Process and Matmor Process. APCS currently holds exclusive licences for the Coldry and Matmor patents and associated intellectual property (the coal dewatering and steel production technologies). The licences and associated Participant's Agreement provide for APCS to further develop and commercialise the technologies.
The Coldry Process and the Matmor Process were patented by the Calleja group, owners of the Maddingley Brown Coal Mine at Bacchus Marsh in Victoria.
*The Coldry Process dewaters brown coal and similar materials by as much as 85 pct in a mechanically simple and economic way creating a high energy value feedstock equivalent to black coal.
*The Matmor Process mixes wet brown coal with low grade unmarketable ores such as iron and nickel and produces high quality steel and nickel via a low cost, low emission retort.
*The Enersludge Technology uses conventional sludge dewatering and drying in the first leg (process A), then adds to that a hot gas generator (process B) and patented converter (process C). Oil, similar to diesel, is produced which can be used to generate electricity. Ash, also a by product can be substituted for aggregate in concrete).
The Enersludge process, which thermochemically converts sewage sludge into reusable fuels is an environmentally sound process, immobilising the heavy metals in the sludge and chemically destroying toxic organochlorine contaminants, making the fuel products readily useable.
A series of lower cost and more flexible second generation designs are now ready for market.

Applications for the technologies
*Brown coal for energy: The process converts wet brown coal to transportable pellets, transforming the calorific value from 8Mj/Kg to 24+Mj/Kg. Typical black coal is 21.3Mj/Kg.
August 2005 was a defining moment of the Coldry Process when International Power Hazelwood used 20 tonnes of Coldry pellets to achieve a cold start fire up of the Number 5 generator at Hazelwood in the Latrobe Valley. The results of the test exceeded all expectations and demonstrated that Coldry is a superior feedstock to wet brown coal fired power generation. Also in August 2005 GRD Minproc completed their independent validation of the ability to scale up the Coldry pellet production process.
Export contract have since been announced.
Current burning of brown coal has been identified as causing up to 30 pct of Australia's CO2 emissions.
*One step steel production: Mixing brown coal and un marketable low grade (30 pct Fe) iron ore to produce high quality rust free new steel at extremely high margins made from mixing equal parts of low grade iron ore, wet brown coal and minor quantities of flux with precursors and processed into pellets for use in the patented Matmor Retort. The ability to make steel at the coal source means that raw coking coal and iron ore do not need to be shipped to steel mills overseas. This results in one third of the tonnage being shipped, producing significant savings.
The process has other potential applications which the company will continue to investigate.
*Fertiliser: A patented technology has been identified which mixes 75 pct coal of any type with sand and other basic ingredients to provide an organic fertilizer able to match high grade NPK (19-19-19) and requiring only one application of the traditional two annually. The current price of this product in the US is in excess of $US200 per ton.
*Semi Treated Sewage Waste: The paid collection of semi treated sewage waste can be harvested for solids, oils, water and gas. ESI has an agreement Australian Native Landscapes.
*Water: Because the brown coal dewatering process recovers as much water as dry material, the restructure and subsequent use of water is being identified.
*The Enersludge assets: Enersludge requires dry sludge (not more than 10 pct water by weight) which in conjunction with APCS and its dewatering technology means there are options available for commercialisation of transportable ENERSLUDGE units using the dewatering process.
*Research & Development: The agreement currently being negotiated will provide funding to under take specific R&D and applied science programs centred around refinement of Coldry process and other related applications on a large scale. R&D will be conducted in collaboration with Monash University and the Latrobe Valley power generators.

Brown coal supply and development of commercial production facilities
APCS currently operates its 10,000 tpa Coldry Process Pilot Demonstration Plant at JBD Industrial Park, Bacchus Marsh, being upgraded to operate 24/7 over a 90 day period, scheduled to be completed by mid July 2006.
The Calleja Group owns and operates the Maddingley Brown Coal mine located 3 km south of Bacchus Marsh Victoria and adjacent to JBD Industrial Park. The mine area has identified resources of over 440 million tonnes of high quality brown coal, consisting of 40m tonne under current licence and mining, 80m tonne adjoining the current open cut and 320m tonne available in adjoining land which is subject to future licensing.
APCS has agreement in principle and is currently concluding arrangements with the Callejas for brown coal supply from the deposit.
APCS expects it will invest in the site to establish commercial production facilities to service existing international export orders of 3 million tonnes pa of Coldry brown coal pellets and expected export orders for Matmor steel.

First order for brown coal pellets
On March 2 2006 ESI announced that Asia Pacific Coal and Steel Pty Ltd has signed a Deed for a forward order with Green Power Resources Pte Ltd, Singapore for the supply of 3 million tonnes per annum of brown coal pellets formed from the patented APCS Coldry process. The first shipment of 50,000 tonnes is scheduled to commence on or before November 2007 from the APCS production centre at JBD Industrial Park, Bacchus Marsh.
The APCS agreement with Green Power Resources provides for the Coldry pellets to be supplied at the Newcastle Coal Spot Price and to be delivered in the 3 calendar months following publication date at the time of confirmation of shipment F.O.B. Geelong Port, Victoria, Australia.
In the event that APCS is able to produce more than 3 mtpa of brown coal in any given year, GPR will have a first right to purchase the extra tonnage on the same terms.

ESI Financials
Last Traded price 80 cents$1.06
Shares Issued 227.6 mln
Market Cap $182.1mln

Values in $000's
Pro-forma BALANCE SHEET Mar 31 2006 Mar 31 2006 *
Current Assets
Cash 1,038 1,038
GST 21 21
Total Current Assets 1,059 1,059
Non Current Assets..
Shares in Unlisted Subsidiary - 12,000
Total Non Current Assets - 12,000
Total Assets 1,059 13,059
Current Liabilities
Payables 30 30
Total Current Liabilities 30 30
Total Liabilities 30 30
Net Assets & Shareholders' Funds 1,029 13,029
NTA per share (cents) 0.45 5.35
Shares Issued (Millions) 227.6 243.6



*The strong commercial potential of potential of the Enersludge renewable process has led to Securities International Ltd (SIL), ESI’s banking advisers, access US Medium Term Note investors. ESI has signed a mandate with SIL to procure a funding agreement to provide up to $US100 million to finance the first stage of the global rollout - announced February 10.
*Jan 24 2006:Environmental Solutions International Ltd issued a prospectus for up to 200,000 shares at 10c each. The shares have been issued to release allottees from the restrictions on trading their shares imposed by the Corporations Act. Funds raised will be applied to working capital and the cost of preparation of the prospectus.

Directors:
Sachlan Fraval, chair, an accountant by training and a former Fellow of the Institute of Chartered Accountants, London. For the last nine yeaers he has been directly involved in the development and marketing of a range of scientific instruments and components worldwide, focussed in the field of forensic science.
Murray D'Almeida, a nominee of APCS. Has 30 years business experience, including founding Retail Food Group Australia and was instrumental in the growth of the company's brands Donut King and BB's Coffee. Is chairman of Bartercard Australia and a director of LSE listed Bartercard International Plc. He is currently extensively involved in food importation and distribution.
Greg Fendis, an engineer with significant business development experience in the telecommunications and IT areas having negotiated commercial agreements with major international corporations.
Co Sec: Sean Peter Henbury

Major shareholders:
Nine nominated Rofin nominees hold 82.4 pct. Which have today settled with the acquisition of APCS

ends