Members will note that Balkans Gold was renamed International Resource Holdings (IRH) in late 2008 – with a refocused company and new Board. This followed Balkans struggling through the global financial crisis during the latter part of 2008. While it had aspirations of seeking exposure to projects in West Africa, these were abandoned earlier this year.
“International Resource Holdings has struck a deal to purchase Clean Global Energy. While highly dilutive, this acquisition brings a credible underground coal gasification team, along with a number of coal tenements.”
Overall, Balkans / IRH has been an extremely disappointing investment given that the company had good potential with its Eastern European gold projects. This involved drilling what appeared to be promising gold intersections along well estabilished mineralised structures – with spare gold processing capacity at a nearby operation owned by a third party. Nevertheless, a slow rate of progress, combined with sovereign risk issues and a lack of funding undermined this strategy.
Acquisition of Clean Global Energy With Balkans Gold essentially viewed as a shell at the end of 2008, it has been renamed International Resource Holdings Limited and has since entered a conditional Heads of Agreement to acquire 100% of the issued capital of Clean Global Energy Pty. Limited.
The acquisition of Clean Global Energy will reposition the company to a focus on Underground Coal Gasification. Members may recall that Underground Coal Gasification involves the burning of coal in situ and extracting hydrogen and carbon monoxide gases to the surface which are then used for a variety of uses including power generation or in the production of liquid petroleum products. The market leader in Australia is Linc Energy with a market capitalisation of A$1billion and projects near Chinchilla in Queensland.
We have summarised the key aspects of Clean Global Energy and the proposed Board changes below. However, the deal will involve the issue of 300 million shares to the vendors of Clean Global Energy and be significantly dilutive on the current capital structure which has around 70m issued shares. However it does bring credible expertise in Underground Coal Gasification and a portfolio of coal tenements in eastern Australia.
Stock Resource Recommendation The restructure and refocus of Balkans Gold into International Resource Holdings and with a strategy of using underground coal gasification technology on a number of tenements in Queensland is commendable given current market conditions and lack of earlier progress. Importantly, Clean Global Energy comes with a number of experienced personnel in this field including Dr Michael Green who was previously involved with Linc Energy.
Despite the large dilution and some uncertainty over the eventual capacity to deliver in this new sector, with the currently low share price, we are inclined to hold on to our investment. Hence, Stock Resource recommends Members continue to Hold International Resource Holdings around 3 cents. Clean Global Energy (CGE) CGE currently a private energy company and claims it has a vision of becoming a significant provider of low cost energy through converting vast sub-economic coal deposits into a cheap, useful energy in the form of Syngas. In exploiting coal deposits that are traditionally uneconomical to mine, CGE will use its proven in-situ extraction method, Underground Coal Gasification (UCG), to turn these sub economic resources into a Syngas that is suitable for feedstock for power generation, the production of chemicals and fertilizers and for use in Gas to Liquids technology that produces petrochemical product including ultra-clean diesel and aviation fuels.
The UCG Process UCG is a process whereby coal is converted to gas in-situ and brought to the surface for further use. The UCG process has significant advantages over other methods of extracting energy from coal in that it allows coal to be processed underground, thus eliminating expensive mining operations and minimizing ground disturbance, in order to produce a low cost industrial gas. The gas can then be used in either power generation or in the further production of liquid petroleum products. The UCG technology to be used by CGE has been developed over the last 20 years by CGE’s Technical Director, Dr. Michael Green and proven most recently in a successful European UCG trial conducted in Spain between 1992 and 1999. Dr. Green has continued to further develop the process used in this trial from the trials conclusion to the present day.
CGE has entered into an exclusive Technology Partnership Agreement (TPA) with Dr. Green, pursuant to which he agrees, amongst other things, to provide services involving delivery of his technical skills, knowledge and expertise to CGE and ultimately transfer this intellectual property to CGE. Dr Green will be appointed to the board of IRH at completion.
CGE’s Coal Leases CGE has four coal leases including EPC 1506, 1508 & 1539 located in the Clarence-Moreton Coal Basin in south-east Queensland and EPC 1507 located in the Biloela Coal Basin in Central Queensland. CGE has applied for three additional coal leases including EPCA 1592 in the Bowen Basin, EPCA 1612 in the Clarence-Moreton Basin and EPCA 1637 in the Galilee Basin. If these additional leases are granted, the seven leases will cover an area of approximately 1,895 square kilometres.
Agreement Terms The company has disclosed the following material terms in its agreement to acquire Clean Global Energy as follows:
IRH has agreed to acquire 100% of the fully paid ordinary shares in the capital of CGE in consideration for allotting and issuing up to 300m fully paid ordinary shares in the capital of IRH to the shareholders of CGE (Shareholders); The acquisition of CGE by IRH is subject to the satisfaction of a number of conditions precedent including the following key conditions: IRH and CGE undertaking and completing due diligence investigations with each party being satisfied in their absolute unfettered discretion with such due diligence investigations within 30 days; (# IRH and CGE obtaining such shareholder approvals or other regulatory approvals for the transaction contemplated by the Agreement and as may be required by their constitution, the Corporations Act, the ASX, ASIC or any other relevant regulatory body; the resignation of all current IRH directors and the appointment of new directors as nominated by CGE, including Mr. John Harkins, Mr Domenic Martino, Dr Michael Green, Ms Alison Coutts and Mr Paul Hubbard with effect from Completion; IRH shareholder approval for the balance of 6,333,333 shares and 3,166,667 options to be issued to Mr Scott Douglas pursuant to the IRH placement completed and announced to ASX on 26 February 2009; Completion occurring under the agreement entered into between IRH and Martern EOOD for the sale of Thrace Resources EOOD as announced to ASX on 16 March 2009 (Thrace Agreement); IRH converting its outstanding debt to equity with non related and related parties including the convertible note issued to Martern pursuant to the Thrace Agreement (approximately 3,761,502 Shares) (Martern Convertible Note); and IRH agreeing on a best endeavours basis to enter into a convertible note to raise $500,000 (Proposed Convertible Note) and to loan these funds to CGE pursuant to the terms of a loan agreement and deed of charge (fixed and floating charge) to be entered into by the parties. Subject to the approval of shareholders of IRH, the convertible note will be converted into 33,333,333 Shares at a deemed issue price of $0.015. The capital raising in relation to the Proposed Convertible Note is to be managed by Cunningham Securities. Proposed New Directors It is proposed that upon the acquisition of 100% of CGE, the current board of IRH will resign as directors of IRH. Details of the proposed incoming directors have been provided below:
Mr John Harkins – Prior to Mr Harkins joining the Board of CGE, he was Senior Vice President of a US based company involved in gasification technology. Prior to moving to the US he was Executive Director/General Manager of Linc Energy Ltd, having steered that company through its successful IPO in May 2006 and the commencement of its business plan, which included the use of UCG and GTL technologies. Prior to this he was CEO of Care Super, one of Australia’s largest pension funds. Mr Domenic Martino – Mr. Martino was the Chief Executive Officer of Deloitte Touche Tohmatsu in Australia from 2001 to 2003. Prior to taking up this position he was the Managing Partner of Deloitte Touche Tohmatsu’s New South Wales operations from 1998 to 2001. Mr Martino is a Director and Non-Executive Chairman of Australasian Resources Ltd, a Director and Chairman of Computercorp Limited, and a director of AIM/TSX listed Gladstone Pacific Nickel Ltd. He was a founding Director and former Chairman of coal bed methane companies Sydney Gas Limited and Blue Energy Limited (formerly Energy Investments Limited). He is also a Director of Waratah Coal Limited. Dr Michael Green – Dr Michael Green is an underground coal gasification specialist who has developed intellectual property, technical skills, knowledge and know how in relation to all aspects of UCG. He has 32 years experience in energy related engineering research and holds a PhD in Chemical Engineering from Imperial College, London. Ms Alison Coutts – Ms Coutts has a degree in Chemical Engineering and a Masters degree in Business Administration. Ms Coutts has over 25 years experience in international engineering project management, strategic consulting and executive search. Since the mid 1990’s, Ms Coutts has been involved in the financial markets in venture capital, stockbroking and investment banking. Mr Paul Hubbard – Mr Hubbard holds a Bachelor of Arts and a Bachelor of Education with experience in the teaching, training, human resources and motivational sectors. Mr Hubbard was an executive with Woolworths then BHP where he was involved in training and development for a broad range of employees. Mr Hubbard established and implemented many of today’s foundational corporate practices during his time with these companies. In our view, CGE appears a credible underground coal gasification player with an established portfolio of coal tenements and expertise with the process. Our inclination would be to upgrade our recommendation as deal achieves confirmation and passes the due diligence process.
IRH Price at posting:
2.7¢ Sentiment: None Disclosure: Held
