Alan Kohler interview (30 mins so digs in a bit) with CEO Phil Stavely released today on Eureka Report. Some summary key points below:
Intro:
Phil Stavely is the CEO of Leigh Creek Energy, which has a coal deposit in South Australia. What they're going to do with it is gasify the coal, in situ as they call it, and then from the gas they'll make urea, which is currently selling for $1,600 per tonne. And their cost, Phil says, will be $100 per tonne, so we're looking like a good margin at this stage. They're a couple of years off starting. He says, it'll be 2025 when they start producing. But they've got an offtake agreement with a Korean business, which happens to also be their contractor and they're thinking about doing an offtake agreement in Australia as well, for the other half of the output. But they'll be producing a million tonnes a year of urea, so look, it's an interesting prospect.
They're burning cash. They've nearly run out of cash to be honest, but it doesn't sound like they're going to have any trouble getting some more, and they have to go to a final investment decision this year. So they're not there yet.
Cash Burn:
End of December $8.3M cash available but spent $16M in the quarter. Spending consistently about $1M a month on regular corporate expenses, December Qtr particularly heavy spend on their Bankable Feasability Study. Anticipating $10M spend this quarter and $80M to complete the BFS. Current estimates for the project (50 year project life) is a NPV of $3-4 billion and an IRR of 30%.
The Project:
Underground gasification of the coal which releases methane, hydrogen, carbon monoxide and carbon dioxide. "We can get hydrogen up to 50 per cent, but we're not doing that, we're producing the hydrogen. The hydrogen will turn into ammonia by adding air and the ammonia, we add CO2 to produce urea. That CO2 is valuable to us as an input to the urea process. We use about 75 per cent of the CO2 in the production of urea. That leaves 25 per cent of the CO2 that we've got to deal with and we will simply deal with that by re-injecting into the ground, into the redundant gasifiers. We've always thought this was a goer, we thought it was possible. We had good information that it was.
Last year, we went off and did an independent feasibility study of what we were proposing with the gas sequestration and that feasibility study proved positive. It's just a matter of engineering it now."
The plan is to produce a million tonnes of urea, (a hundred million kilos of hydrogen) with the possibility to expand to 2 million tonnes.
Strong existing infrastructure in place - rail line direct to the plant, warehousing and offices all exist due to the historic mine.
Why Urea:
550 km north of Adelaide, "so you want to have a high-value product. We didn't want to just make gas and export gas for $7 a gigajoule. In 2019, we went for urea on the basis of two things. One, it's easier to travel and it's easy to transport. It has no tendency to explode or anything. And secondly, it was using up a really significant portion of our carbon dioxide, which I see as a really significant thing going forward."
?Price of urea currently about $1500/tonne; at the time of PFS calculations done on low end at $489/tonne. Costs approx. $100/tonne reasonably constant.
Offtake:
Heads of agreement in place with engineering contracting Daelim from Kore (see previous straw) for 50% of production, Have received offers already for 50% domestic offtake, currently reviewing when to pre-commitment remaining offtake.
Current Timeline:
Start construction January 2023 and first production during 2025. The existing arrangement with Daelin is for EPCC (engineering, procurement, construction and commissioning) as well as partial funding.
DISC: held in my SMSF