Carbon Energy finds Chinese support as gas plans accelerate -...

Carbon Energy finds Chinese support as gas plans accelerate - * (AU)
Carbon Energy finds Chinese support as gas plans accelerate

Tuesday, December 15, 2015 by Proactive Investors

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Carbon Energy has continued to fortify growth opportunities for its scientifically proven technology
Carbon Energy (ASX:CNX, OTCQX:CNXAY) has continued to fortify growth opportunities for its scientifically proven technology by attracting major Chinese investment and opening channels to commercialisation.

Most significantly, the company undertook a transformational step with the signing of a Joint Venture Agreement with Beijing JinHong Investment Co., Ltd (JinHong) to develop the first commercial Demonstration Project of its keyseam technology in China.

JinHong is committed to providing US$30 million in capital required for the commissioning of the commercial Demonstration Project in China over 3 years, which should be sufficient capital required to commercialise the Project.

Carbon Energy thus avoids incurring the capital costs it might otherwise have needed to raise to commence a project in China.

Chinese Government approval is expected to be obtained before the middle of 2016 as the joint venture works to progress key actions including the execution of a plan and budget, the securing of suitable coal leases and the establishment of an office in Beijing.

The JinHong JV followed the investment earlier this year by the Company’s major shareholder Kam Lung Investment Development Company, increasing its interest in the company to 19.99%.

Carbon Energy received $2 million from Kam Lung which will be used in the establishment of a gas business and general working capital joint venture in China.

Carbon Energy will have non-dilution rights up until possible IPO of the joint venture.

Kam Lung is a Hong Kong-based private investment company and is 100% owned by Mr Zhuang Hai Hui.

Most recently, the company has realised project development progress with the grant of a renewal for its Mineral Development Licence (MDL) by the Queensland Department of Natural Resources and Mines (DNRM) to 31 January 2018 for the area which contains the company’s 2P Gas Reserves earmarked for the Blue Gum Gas Project.

The renewal provides the basis for the company to continue to progress the activities of a Work Plan which was submitted to the Government in October 2016, where the company is continuing a groundwater monitoring program under its Environmental Authority as well as forming part of its comprehensive Rehabilitation Plan.


Keyseam opportunity

Carbon Energy’s keyseam technology is the only UCG technology to successfully complete the rigorous Queensland Government scientific and environmental evaluations.

Its technical innovation, building off 10 years of CSIRO research delivers a lower emissions, high quality and consistent coal to gas solution.

The benefits provide manufacturers with a cost effective, reliable, long term source of high quality syngas.

The global energy market presents an opportunity for keyseam, particularly with the current economic circumstances.

Low international prices for gas, brought about by low oil prices and a number of LNG projects coming into production, have increased the economic pressure on any further development of large gas projects.

The reduced investment in new coal mining operations has seen an increase in the number of stranded coal deposits, which may be economically suitable only for underground coal gasification.

The poor environmental health of the atmosphere, in some rapidly developing economies is creating a demand for new technologies to both satisfy their energy needs and exploit their abundant undeveloped coal deposits, particularly for local gas supply for industrial and domestic use, especially in China and India.

It is understood that new technologies will experience long adoption life-cycles as they attempt the leap from innovation and into the mainstream.

Completing a technically and commercially successful project will be the watershed for Carbon Energy’s sustained future growth.


The importance of China

China is currently offering a supportive regulatory framework for UCG and is actively pursuing UCG technologies to promote cleaner coal technologies in its next Five Year Plan, which commences in March 2016.

This decision recognises the significance coal continues to play in providing low cost energy and at the same time matches China's strategic imperative to look for cleaner alternatives to traditional coal mining and consumption.


Analysis

The JinHong joint venture represents an excellent opportunity for Carbon Energy to realise the development of its first commercial demonstration project outside Australia.

Importantly, JinHong’s US$30 million capital commitment is about is sufficient to commercialise the project.

China’s current economic climate, high demand for lower-emission coal technologies and supportive government policy make the country a very attractive market for promoting the company’s keyseam technology.

Social pressures to pursue more environmental forms of energy (especially in Asia) will contribute significantly to driving the marketability of keyseam.

In addition to Carbon Energy’s recent Chinese investments, the company has received $2.5 million as a research and development (R&D) tax incentive cash rebate from the Australian Taxation Office for R&D expenditure in the 2015 financial year and subsequently repaid a $1.2 million Macquarie Facility.

Potential upcoming price catalysts for Carbon Energy stock include Chinese approvals expected next year for the JinHong joint venture, identification of project partners, licensing opportunities and resources and continued progress in Queensland.


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