Todays Market, page-19

Here’s the status of ANQ as I see it:

WMRC Project (DiCOM Plant)

Delays v Design/Tech

There have been some concerns raised on here regarding the quality of this project. For mine, it has been stated repeatedly through numerous company reports/announcements that completion of the WMRC project, whilst delayed by mechanical faults (Monadelphous’ remit under the joint venture), did not have any problems with the design/technology (AnaeCo’s remit under the JV).  I.e. The technology is proven (and in fact, during the delay, AnaeCo’s continued R&D actually improved the design beyond the original specs).  I suggest that the Chinese and Monos both recognise this.  Again, the delays were mechanical/construction related, not design/tech related.

If you (or your architect) drew up the plans for your bespoke house and then a builder put in faulty brickwork/plumbing/flooring/etc causing re-work delays to the house build, it doesn’t mean there’s anything wrong with the design!

Processed Tonnages

Some have stated that the plant has not operated at full capacity for any significant period of time. They are correct by my understanding.  However, the reason it has not operated at full capacity for significant periods is perhaps misunderstood. The WMRC Council Agendas/Minutes have been useful sources of information for processed tonnages, etc, however most don’t seem to be aware of the lengthy issue the WMRC has had with obtaining enough waste to meet their contractual supply obligations to the DiCOM Plant. Read further through these council documents over the last few years and it is clear that the council has been pushing to obtain waste from other councils:









This picture (http://www.anaeco.com/project/wmrc-project) below may help clarify part of this:





Note that this is not just a picture of the DiCOM plant (Items 2, 3, 4, 5 and 6 - designed by AnaeCo, constructed by Monadelphous and owned by Palisade), but also the WMRC’s (Council’s) Transfer Station (Item 1 above).

The owners of the transfer station (i.e. the Council/WMRC) are contracted to supply sufficient waste to the DiCOM plant to ensure it can run at appropriate volumes.   The excerpts from the council documents above show that the council has/is having challenges meeting those contractual requirements.

Without sufficient supply the plant cannot run at capacity!



Performance Trials

As most are aware the requirement for the plant to complete Performance Trials was waived by the WMRC as part of the revised Project Completion requirements. Going back through the announcements and council documents there is clear implication that this is due to either the whole plant, or the various parts of it, running for sufficient periods through the protracted commissioning stage (including whilst mechanical defects in particular elements were being rectified) to validate the successful working of the relevant elements to the satisfaction of the WMRC, albeit with a requirement for punchlist items to be completed prior to handover.  Ability of council to supply sufficient waste would of course also be a factor.  Had there been no mechanical issues, and sufficient waste supply, my understanding is the plant would have gone straight to the ~11 week Performance Trials.



Valuation

Danginvestor has already commented on the issues with getting a true valuation of ANQ at the moment.   The Chinese have bought in with an implied value of ~$20m, Monos similarly around $20m (from Danginvestor’s post).   However, a $10 spanner sitting on the shelf at the hardware store can be worth a lot more (produce a lot more than $10 revenue) in the hands of a tradesman.   Similarly, ANQ/Monos have come to the table with IP and a proven design/tech.  XEPTC have come to the table with capital and commercial opportunities.  Yes XEPTC have some IP already, but this transaction may be analogous to XEPTC wanting to take the 1990’s-spec 4 cylinder engine out of their cars and replacing it with ANQ’s 21^st century turbo-charged V6.

Whatever the optimum metaphor is, a week ago ANQ were a company with some promising leads (Shoalhaven, ARR in SA, Repindo in Iraq, Brisanzia in India – I’d expect the Dynagreen MoU in China may be cancelled now with XEPTC’s involvement), $16m+ in debt and no cashflow.

With this deal we will (I expect – other than perhaps Dynagreen as stated) retain those promising leads, eliminate all debt and have enough cash in the bank to last for around a couple of years (even without any cash flow), plus an almost certain pipeline of opportunities (given that XEPTC and Monos both have demonstrated appetite for significant ownership portions of ANQ).

Now consider that a P/E higher than 10 may be applied given the point on the evolution curve that ANQ is at (i.e. ‘growth’ phase). Also, and probably much more significantly, it seems we will be fed opportunities from a company that has had “several thousands of projects” (http://xqhb.com/en/about.aspx).  

Again in line with Danginvestor’s comments previously $10m per year with P/E 10 gives market cap of $100m. At 15b shares that’s ~ 0.7cps.  $15m per year ~ 1cps.  If it gets to $50m per year ~ 3.3cps.  

With P/E of 15 those SPs become ~ 1c, 1.5c and 5c.

A week ago the bid/ask split was 0.1/0.2. Today it’s at 0.4/0.5.  Where will it be as we close in on the vote allowing this deal to go ahead?

Cheers

Freighter