Australia | May 15 2008
By Greg Peel
FNArena first brought Linc Energy ((LNC)) to readers’ attention in August 2006. The Queensland-based company planned to become a world leader in the combined processes of underground coal gasification (UCL) and gas to liquid (GTL) conversion by turning coal into gas and gas into diesel on-site at its Chinchilla coal mine. Linc is presently close to completion of its 10 barrel per day demonstration plant.
To learn all about the process and the history of Linc see “Coal-To-Oil: Linc Aspires To World Leadership” (Australia: 05/08/06).
This week Linc has achieved a major milestone in lodging a mining lease application (MLA) with the Queensland government for a commercial scale UCG/GTL plant in Chinchilla. Linc is no stranger to the state government, having been awarded Significant Project status in May last year. On the assumption the demonstration plant proves the process is commercially viable, Linc’s medium term plan is to build a 20,000 barrel per day plant at Chinchilla, which at this stage is targeted for completion around end-2010. But Linc also plans to begin taking its technology global in 2008.
The MLA is the first step required before obtaining an Environmental Licence and finally a Mining Lease, allowing Linc to fulfil its dream of “producing huge mounts of energy” in a relatively small area, as Linc’s laconic CEO Peter Bond put it in this week’s announcement. The beauty of the process is the gasification occurs underground, and only the liquification plant sits on the surface. Carbon dioxide released in the process is captured and converted, and the diesel product at the end of the chain is much cleaner and produces much fewer of its own nasties when burnt than conventional diesel. Gasification can also be implemented in coal reserves that are not suitable for commercial coal mining, or in existing mines that have reached the end of their commercial viability.
The MLA in question covers three mining leases within a 10,000ha area. 27% of the area has been test-drilled and JORC reserves of coal total 401 million tonnes. Active exploration is underway in the other 73%. When Linc listed in May 2006 the oil price was around US$70/bbl. The annual contract price of coal has tripled in 2008.
Late last year Linc acquired a 60% stake in Russian company Yerostigaz, a company operating since 1964 and a vital part of the former Soviet Union’s UCG program. The process was invented by Russian scientists who were captured by Hitler and put to work in WWII. Apart from further development in apartheid South Africa – when the country was under sanction and couldn’t buy oil – the process saw little further development given the abundance and low price of crude. Clearly the story is different in the 21st century, and Linc is at the global forefront of coal-to-oil technology.
With its 60% stake in Yerostigaz, Linc has added 230 employees experienced in UCG/GTL to its team.
Linc is not covered for analysis by any of the major stock broking houses in Australia which form the FNArena database. It has, however, recently been covered by US firm Merriman Curhan Ford, who has a Buy rating on the stock. FNArena noted in “Quotes & Shorts” on April 24 that Linc – which was listed in May 2006 at 25c – received a speeding ticket when the stock jumped 26% in one day to $1.62. The only explanation the company could give is that CEO Peter Bond and team had just begun a roadshow to potential investors in the US, where the stock is listed in ADR (American Depository Receipts) form.
Well this week the stock hit $3.00. While clearly a lot of upside has now been missed by those not already in the shares, Merriman stated on Monday “Despite the recent run in the stock, we believe there is still much room for upside given strong oil pricing trends and the potential for reducing dilution through coal sales”. If Linc needs funds, it can just sell some coal.
At $3.00 on the ASX the equivalent US-listed ADR price is about US$28 (shares are bundled). Merriman revised its target range on Monday to US$37-47. The stock has run very hard very fast, and may be due for a pullback once the initial US interest is saturated. However, as a longer term investment Linc has not yet reached its potential, in the broker’s view.