We have a whole lot of new holders who have been drawn to this stock over the past few days by the sensational headlines Re Linc's substantial potential with its SA Shale Oil exploration leases.
Many of you may know little else about the company. I hope you find the following background summary useful and I welcome all contributions/corrections/ pros/cons. It is all my opinion and you should verify any purportedly factual information for yourself (some goes back in time and relies on my now ageing memory).
As a safe bet I suggest you initially value Arckaringa at zero. If all comes to fruition this will clearly not be the case. Now ask yourself if the current share price is fair value in this scenario. IMO LNC still remains undervalued. What follows is why I think this to be the case.
It is important to understand that LNC has a considerable number of different irons (or is that 'oils') in the fire at the moment - any of which may contribute to a substantial near term increase in the SP.
Additionally, LNC's UCG/GTL technology has for a long time attracted many experts in coal/geology/oil etc as holders and active participants at company meetings/ presentations and online. You will find a plethora of info on HC from some of these experts.
LNC has previously been $5 plus. This was prior to GFC when an MOU was signed by the Chinese to purchase Teresa Coal in QLD for 1.5 billion (I think from memory). The Chinese dragged this on for ages and if I recall correctly it made LNC the best performing ASX stock in 2009 (it actually held up during the worst of the GFC for some time). This deal eventually fell through and the price dropped (back to 95 cents momentarily) and hung around 1.50 until Adani Coal Sale. The insto's had generally lost interest in LNC after the failure of the Teresa sale.
Linc still owns Teresa and are continuing to advance the resource. The asset price may have been over the top pre GFC however, it still has real value and is being actively advanced. It will probably form part of any coal asset spin off in the future.
In August 2011 LNC sold another Qld coal deposit to the Indian company Adani for around 500 million. This tenement now known as Carmichael. A special dividend of 10 cents was made. LNC ended up around 3 bucks post sale. Adani are investing billions to bring this mine on stream. This is pertinent to LNC who will receive a $2 per tonne royalty on all coal produced from the mine for the first 20 years of production. Furthermore, this royalty increases with the CPI. With targeted full production of 60 million tonnes per year I leave it to others better skilled with the numbers to attribute a value for this future income stream.
LNC holds a number of other Oz coal tenements and have a diversity of coal holdings in various other parts of the world including Poland and Powder River Wyoming USA.
Post Adani sale I (and I suspect many other holders) thought things were looking pretty rosy. However the share price started to fall and continued down into mid 40 cents level. I believe this was because LNC invested most of their cash buying US oil assets (Gulf Oils assets, Wyoming and Alaska). Not only this, they also took on substantial loans to help finance this. A lot of the gulf oil assets needed substantial upgrading, cash flow was poor and the burn rate high. Most of us were pretty despondent. The shorters honed in and mangled the price. Insto support had been absent for a long time.
The gulf oil is now on track for 6000 bbpd and growing. They are exploring deeper levels on their leases. They are currently drilling Umiat in Alaska. This was a former US Strategic Oil reserve area - the aim is to upgrade to 1P. This could also be a substantial income strream for LNC although it faces significant logistics and expense because of its location. They have a number of other conventional oil assets.
The main and not to be forgotten reason for LNC's existence is its pursuit and expertise in underground coal gasification and the conversion of this gas to diesel/jet fuel and other petroleum products. The company has enormous expertise in drilling into stranded underground coal to ignite and burn it underground in a controlled manner to generate 'syngas' - a mixture of hydrogen and carbon monoxide. These gases are brought to the surface. They may then be fed to a power station, for example, and burnt instead of coal or conventional gas. Early in its history, LNC purchased a power station in Yerostigaz, located in Angren, Uzbekistan. It is the only commercial UCG operation in the world. Operational since 1961, Yerostigaz produces UCG synthesis gas to be used for power generation.
Alternatively the syngas can use a modified Fischer Tropsch process to convert it to petroleum products - in particuoar diesel and jet fuel. The company has an operation research plant at Chinchilla to do just this. It has been operating successfully for a number of years. Apart from the mediocrity of the previous Qld Government, this might just be a commercial operation by now. The new Qld Admin under Campbell Newman is reassing the role of UCG and one trusts they will show more commonsense and expertise. An announcement on their findings is pending. A positive outcome may be very favourable to LNC.
Linc has a commercial interest in AFC (UK company) that is developing fuel cells that hopefully can run on syngas to directly generate electricity. They have also had some contact with Oxford Catalysts in the UK who are developing new technologies for modular gas (syngas) to liquids (ie diesel etc) plants. Any involvement between LNC and Oxford Catalyst Group (OCG) is hush hush. Some info was released during the 2011 Annual Meeting however it was quickly withdrawn. HC speculation is that OCG have been trialling their reactor at Chinchilla. This would also tie in with some recent esoteric anns by OCG.
Towards the end of 2012 interest in Linc started to pick up - Roman Abramovich (former Russian oil czar, Chelsea football club owner and a very rich man) visited PB and toured Chinchilla. RA has recently taken a stake in OCG and hold a substabntial interest in AFC (LNC also a shareholder). Where this is going with linc we don't know, however the mind boggles!
Early 2012 Golden Concord Group (China and a very big manufacturer of solar cells)signed an MOU with Linc to access their UCG/GTL for China. They are to pay 120 million for 5% of the comapny. 60 mil on signing and another 60 mil when first plant operational. Linc will be carried on these projects for 49% equity. We have been and still wait for this to come to fruition. On the upside, China has a lot of stranded coal suitable for UCG.
Late 2012 LNC announced a term sheet (still under neg) with Exarro in South Africa for use of LNC tech. Exarro paid LNC 3 mil in consulting fees early Jan 13 related to this matter. A substantial upfront license payment is pending subject to final term sheet preparation. How much we don't know, however PB has said that it would substantially cover the costs of the entire Clean Coal division for a year. Linc gets 15% of 1st plant in Sth Africa and can participate in up to 49% of others.
Linc currently in discussions with large private company in Ukraine for use of LNC tech. They are in discussions in many locations. Advancement of a UCG operation in Wyoming is currently waiting various govt approvals. LNC hold large coal leases in this region.
In addition to the various energy streams from UCG, LNC is also exploring the use of its various by product gases for enhanced oil recovery. This may be marketable to others and used for their own oil wells. 'This is getting complicated!!
LNC has bought many coal tenements on the cheap over the past few years in a variety of countries. This is primarily for UCG however it includes unexpectred gems - eg commercial coal fields in Qld, Shale Oil in SA and potential conventional oil in others.
Since Aug 2012 Credit Suisse has been buying LNC shares - now have over 8% of the company. They bought while cheap and were still buying just sub $2. They may still be accumulating. Don't know for - may be their own account. HC posters have speculated maybe RA (the Russian) or GCL. Who knows - point being someone is very interested in this company.
I leave it to others to add to this summary for what I consider to be a very exciting company. Do your own research.
Finally, PB is a great salesman for his and our company. Sometimes I think he has been far too enthusiatic.
A number of milestones have not been met or delayed extensively. This has progressively disenchanted the insto's who by and large have avoided LNC since the fallover of the Teresa sale. BKK were brought on board mid 2012 and since then LNC anns have been more measured and targets more or less achieved.
Archaringa, if for nothing else, has shone the spotlight on LNC and given it a world stage to tell what it is really about. The institutions are again taking notice. LNC should also be back in the ASX with next S&P adjustment. Good luck to all holders
LNC Price at posting:
$2.67 Sentiment: LT Buy Disclosure: Held
