Interested in hearing how others interpret these excerpts from the quarterly (my comments included)...
"Since the project’s inception last year a number of engineers from Kronos’ Leverkusen plant in Germany have visited Newcastle to familiarize them with our technology and to contribute their knowledge to the project and interact with Austpac’s engineering team. This has included process engineers, project construction engineers and experts in computer modeling of chemical processes.
Recent process modeling suggested that a number of changes could be easily incorporated into the flowsheet to improve the operability and production flexibility of the Newcastle Plant."
FG COMMENT - The expert reviews of the proposed design found several concerns and suggested a number of changes.
"This led to a detailed technical review of the project which has continued throughout the first quarter of 2012 by the engineering team."
FG COMMENT - Concerns were serious enough that we needed to do a detailed review of all proposed project designs and proposals. Importantly, this was still in progress at the end of Q1. No information on when it is likely to conclude.
"The modifications necessitate increasing the size of some equipment yet to be ordered, so the plant will now be larger than originally envisaged and the capacity of the state-of-the-art acid regeneration plant has been doubled to give the plant sufficient flexibility to process a wide range of materials."
FG Comment - I'm not cluey enough to understand why doubling the size of the plant provides flexibilyt to process additional materials. Can anyone shed some light?
"The project budget has also increased and Austpac and Kronos are in discussions regarding project completion and financing terms."
FG COMMENT - We've already talked about the funding side of this. Given it took 7 months for APG and Kronos to conclude and announce the deal last time, I guess we'll have a little wait on our hands.
What we haven't talked about is the "project completion" aspect. This probably means Kronos will provide some full time support to get the plant up and running. Probably a very good thing for APG, but nothing is free. This support will likely fall into the neogotiations over the fee.
"The Newcastle team, led by John Winter, has been augmented by an experienced senior project engineer to assist the project construction and administration to allow John to focus on process engineering and plant commissioning."
FG Comment - Really note sure how to read this one. Does this imply that the Kronos team felt John wasn't the right guy for this and they needed someone more experienced in charge to get this over the line?
CONCLUSIONS:
- Appears the relative inexperience of the APG team in operationalizing their technology was brought to light from the Kronos experts. No put down of the APG team, as no doubt its typical of small companies undertaking large projects for the the first time.
- Timing for the project could be significantly delayed. Project review wasn't complete, equipment hadn't been ordered, financing wasn't finalized. I have absolutely no basis for this next comment, but my gut tells me that we'll get a revised Q1 2013 date for the plant to be operational, that this will prove too ambitious again and that by end of 2012 it'll be pushed back to Q3/Q4 2013.
- Kronos have pretty much got us over a barrel in neogotiations. Only through their inclusion have we been able to discover that the plant we had been building would have had significant issues in operations and revise designs to get it over the line. Also, no doubt there has been a reasonable level of redundant expenditure (of Kronos's money) associated with the change in course (equipment too small, employees hired too soon). So I can't see APG bargaining from a position of strength, particuarly with the share price close to its 5 year low.
In light of all this, how would shareholders feel about a 10c take over offer?
Cheers, Fergus
APG Price at posting:
3.1¢ Sentiment: LT Buy Disclosure: Held
