Journalist: Matthew Stevens
Date: 11 April 2012
Publication: The Australian Financial Review
Page: 44
The spotlight of opportunity has fallen on a small Perth-based miner of Indonesian coal called Kangaroo Resources. But, almost certainly, not quite in the way chief executive Mark O'Keefe might have hoped.
Kangaroo has been reluctantly invited into an international legal dispute between White Energy, the latest coal vehicle for that clever cohort of investors who made a mint with the sale of Felix Resources to Yanzhou, and its erstwhile Indonesian partner PT Bayan Resources.
The unexpected collapse late last year of the coal supply side of a joint venture that was supposed to be the landmark in the progress of White Energy's smart coal technology saw White launch proceedings against Bayan last December in a Singapore court.
And, perhaps as further evidence of White Energy's loss of confidence in things Indonesian, last week White set its sights on O'Keefe's Kangaroo. Late on Thursday evening, as a result of an application by White Energy, the Supreme Court of Western Australia issued a series of orders freezing temporarily Bayan's 56 per cent shareholding in Kangaroo.
Evidently, White Energy is looking to the Supreme Court to deliver it with local legal security should Singapore's High Court make orders of damages against Bayan in response to the Australian company's claim of "wrongful repudiation" of its joint venture.
The last time we saw something like this was when the Federal Court froze a 5 per cent holding in Fortescue, then valued at $735 million. That position was (and still is) owned by the currently topical Magnitogorsk and it was frozen briefly in December last year on the application of a Swiss iron ore trader claiming the Russian steelmaker was welching on take-or-pay contracts.
In March, White Energy was forced to take a $129.9 million impairment on a broken joint venture that has already built a unique coal processing plant at Tabang on Indonesia's coal-rich island of Kalimantan.
The idea was that White Energy would provide the intellectual property and build a plant that converts wet, sub-bituminous coal into super-efficient, highly stable and wholly exportable briquettes.
Bayan would earn its 49 per cent of the deal by providing capital and supplying the coal that would feed the plant. In the end, for reasons that courts in Singapore and Perth will be called to make judgment upon, Bayan made a last-minute call not to deliver the coal. It will export it instead.
Bayan seems to be taking advantage of an export window that has remained open a bit longer than anticipated. The Indonesian government has long said it wants to stop the export of low-value coals but as recently as last week, officials said new restrictions would not be in place until 2014.
That doesn't help White Energy now. It is left with a schmick piece of machinery but no coal to process. Hence the impairment and White Energy's hard push to find its own Indonesian coal resource, made all the more possible by local reforms that allow almost full foreign ownership of coal resources.
White Energy is run by Brian Flannery and its board. The share register includes Mr Coal's long-time fellow-traveller Duncan Travers and one of commodity trading's many international men of mystery, Hans Mende. These are not people used to the sort of disappointment dished out by Bayan.
Which brings us to Kangaroo Resources. To a degree, it is a perfect fit for the ambitions evident in White Energy's pursuit of Bayan through Singapore's High Court, both from the point of view of the valuation and of the geography of assets that underpins that value.
Bayan's frozen shareholding is worth $250 million and is the product of a company-making deal between Kangaroo and its Indonesian ally that left O'Keefe & Co with a "cornerstone" thermal coal project called Pakar.
Kangaroo, chaired by the founding CEO of the short-lived Dyno Nobel, Peter Richards, owns two other projects on Kalimantan. The Mamahak project is on track for production soon while the nearby GPK project is reviewing tenders for construction and mining.
And what is White Energy looking for now? Well, obviously, it wants some sort of legal satisfaction from the financial material insult delivered on the Tabang project by Bayan. Also, it wants to find some coal that might see the immediate viability of Tabang recovered. The attempt to ring-fence Kangaroo as locally based security might then be as operationally strategic and opportunistic as it is legally savvy.
Over at Kangaroo, if there are concerns about developments they are showing no public sign. O'Keefe admits to a fair understanding of Bayan's position and an appreciation of why White Energy might feel aggrieved. He reckons the temporary freeze on Bayan's holding is a return to familiar territory given the holding, until quite recently, was held in escrow.
Beyond that and a determination to keep a close eye on the next round of proceedings, he says there is nothing yet of substance that should concern his other owners.
The next step here is that White Energy needs to lodge a $2 million security bond with the WA court by stumps on Thursday, with a further hearing listed for April 18 at which White Energy might be expected to extend the freeze orders.
White says claim on Bayan solid
Journalist: Dan Hall
Date: 11 April 2012
Publication: The Australian Financial Review
Page: 17
White Energy chief executive Brian Flannery is confident that the coal technology group will successfully claim more than $100 million in damages from former Indonesian joint venture partner Bayan Resources.
Bayan held a 49 per cent stake in White Energy's coal upgrading plant at Tabang, Indonesia, with Bayan providing low-grade coal as feedstock for the plant.
However, Bayan demanded that White pay $US45 million ($43.6 million) for the Indonesian group's stake in the company when the joint venture collapsed late last year.
White claims that Bayan breached the terms of the Tabang joint venture and has commenced legal action against Bayan in Singapore.
It has also successfully applied to the Supreme Court of Western Australia to have Bayan's shares in Perth-based coalminer Kangaroo Resources frozen pending court hearings later this month.
Kangaroo boasts a market capitalisation of about $430 million, which values Bayan's 56 per cent stake in the company at about $240 million.
Mr Flannery told The Australian Financial Review that the freeze on Bayan's investment in Kangaroo would provide protection pending White's damages claim in Singapore.
"We believe we will be successful, and therefore we want some protection there," he said.
White said that orders from the Supreme Court of WA prohibit Bayan from transferring shares in Kangaroo to a related party.
White said Bayan was prohibited from disposing of its shares in Kangaroo to any entity, without giving seven business days' notice of the proposed transaction.
In a statement to the ASX yesterday, Kangaroo said it did not anticipate any adverse impact on the company or its operations as a result of the proceedings.
WEC Price at posting:
4.0¢ Sentiment: None Disclosure: Not Held
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