PUBLISHED: 13 Oct 2014 15:32:31 | UPDATED: 13 Oct 2014 15:32:57PRINT EDITION: 13 Oct 2014
Angela Macdonald-Smith
“Virtual pipeline” company Sub 161 is understood to be heading toward a public listing in the first part of 2015 as it looks to expand beyond its foundation project involving gas supply to Fortescue Metals’s Solomon Hub iron ore operation in Western Australia.
The venture, chaired by Nathan Mitchell of the Mitchell Group of companies in Queensland, is considering a float to raise between $25 million and $50 million, managed by stockbroker Morgans.
The proceeds would be used to fund a potential second project and to repay debt to reduce the leverage of the 100 per cent-debt-funded initial project.
Sub 161’s business model involves compressing or liquefying natural gas that can then be delivered to remote sites not connected to a gas grid or to an electricity network, for use in power generation, road trains or mine haul vehicles.
Those customers, who are typically reliant on expensive diesel as their main energy source, can then cut their energy bills without a major outlay of capital, which is particularly suitable for smaller satellite mines that don’t have the duration of life to underpin construction of a new pipeline.
The company’s first project was based on the win of a contract with Fortescue to provide gas for the Solomon Hub in advance of gas arriving to the site from the new Fortescue River Gas Pipeline, a $178 million, 270-kilometre pipeline from the main Dampier-Bunbury line being built by Duet Group’s DBP Development Group.
Gas is being purchased by Sub 161 from Apache and is processed at a CNG plant in Port Hedland before being transported to the customer by a continuous cycle of road trains.
Once the new pipeline comes into operation in about mid-2015, Sub 161’s $50 million capex project, involving 11 terajoules a day of supply, can be re-deployed for another customer, or converted into a new CNG feeder station to supply another project, said Sub 161 director Stephen Bizzell.
However, the project is running slightly late, having been due to start supplying gas to Fortescue about a month ago for use at the 125-megawatt TransAlta power station at the Solomon site, which currently runs on diesel. It is now expected to start in three or four weeks’ time.
Sub 161 is owned by Mr Mitchell, Mr Bizzell, chief executive Angus Karoll, and three institutional investors. Three levels of debt funding have been used to finance the initial project, involving senior debt from Commonwealth Bank, mezzanine financing and lender finance from equipment suppliers.
Morgans also advised on the financing for the project. Fortescue has said its 2014-15 energy costs will be more than $US800 million ($916 million).
The Australian Financial Review
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