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

LCK today announced a Share Purchase Plan for shareholders to raise $5 million to progress their Urea project. Slightly discomforted by the vague and waffley description of how the funds will be used (below)

Under the SPP eligible shareholders may apply to purchase up to A$30,000 worth of new fully paid ordinary shares in the Company (New Shares) without paying any brokerage or other charges. Participation in the SPP is optional and is open to shareholders who were registered as holders of Shares at 5pm (CDT) on 10 January 2022 (Record Date) and whose registered address is in Australia or New Zealand.

Shareholders participating in the SPP will be able to purchase Shares at an issue price of A$0.15 per Share which represents a:

• 6.25% discount to the closing price on ASX of the Shares on 10 January 2022, being the last day before the SPP was announced; and
• 13.44% discount to the volume-weighted average price of Shares calculated over the last five trading days preceding the date the SPP was first announced, being 11 January 2022.

The Company is targeting to raise up to approximately $5,000,000 under the SPP. However, LCK may decide to accept applications (in whole or in part) that result in the SPP raising more or less than that target amount at its absolute discretion and within the limits prescribed by the ASX Listing Rules.

Under the SPP, eligible shareholders may elect to apply to purchase a parcel of shares with a dollar amount totalling $2,000, $5,000, $10,000, $15,000, $20,000, $25,000 or $30,000.

Funds raised under the SPP will be used to progress the development of the Company’s flagship Leigh Creek Urea Project (LCUP) through the next phases of the commercial pathway. Funds will also be used to undertake business development activities, along with general corporate activities and for general working capital.

DISC: held in my SMSF

Another positive step announced for LCK today having been granted authorisation under the Aboriginal Heritage Act to proceed with the development of the Leigh Creek coal field gasification project.

Disc: held in my SMSF

Highlights

Aboriginal Heritage Act authorisation granted

• Leigh Creek Energy Limited and its wholly-owned subsidiary has been granted an authorisation under the Aboriginal Heritage Act which will permit the development of the in-situ gasification project within the former Leigh Creek Coalfield.
• The approval is granted as a result of an application by Leigh Creek Energy under section 23 of the Aboriginal Heritage Act 1988.

Section 23 Authorisation

We are pleased to announce that an application by Leigh Creek Energy under section 23 of the Aboriginal Heritage Act 1988 has been approved by the Minister for Aboriginal Affairs and Reconciliation. This follows on from the granting of a Petroleum Production Licence in late 2020. In granting this authorisation the Treasurer Rob Lucas stated:

“Leigh Creek Energy Limited ...have been granted an authorisation under the Aboriginal Heritage Act which will permit the development of a proposed in-situ gasification project within the former Leigh Creek Coalfield north of Copley in the Flinders Ranges.”

LCK Managing Director, Phil Staveley, commented:

“We are pleased with the delegate of the South Australian Minister for Aboriginal Affairs and Reconciliation positive decision on our project that recognises the significant economic benefits for shareholders, the state economy and Australia’s wider food security. Our commitment, as a company, is to make a positive difference in the areas and the communities in which we operate. To leave behind a better place than we first encountered. What we achieve in the Leigh Creek area will be the proof.”

Further to yesterday's trading halt prior to an announcement on offtake agreements, today's announcement does indeed appear to be material. LCK has announced an agreement with Daelin in Korea for a minimum of 500 000 tonnes of urea a year for 5 years. Stock trading up 30% at time of writing. some highlights below.

Disc: held in my SMSF

HIGHLIGHTS

• DAELIM Co., Ltd. (Daelim) and Leigh Creek Energy Limited (LCK) enter into a Heads of Agreement (HOA) for an offtake of a minimum of 500,000 metric tonnes of granular urea per year for a minimum of five years.
• The purpose of the HOA is for the parties to exclusively work through and finalise the detailed terms of the offtake agreement.
• The same process (HOA preliminary to contract) was used for the Engineering, Procurement, Construction and Commissioning (EPCC) contract with Daelim
• This agreement is for all urea produced that is surplus to requirements for the domestic market. This provides LCK greater opportunity to maximise revenue and the capability to develop its domestic distribution network.
• Increased global energy costs, increased urea prices and food security concerns have validated the LCK Board decision to not accept previous offtake offers.

LCK Executive Chairman, Justyn Peters, commented:

“It is no coincidence that immediately following travel borders being opened up that we were able to travel to Korea and hold very positive meetings with Daelim. This HOA is important to our company as it sets out a clear process that mirrors the process used to sign the EPCC contract with Daelim. An HOA with an exclusivity period allows both parties to put in the time, energy and cost to come to a definitive agreement without the risk (for want of a better description) of, to be frank, Daelim being gazumped by another party. After meetings with Daelim, LCK was sufficiently confident to grant an exclusive period.”

1. An offtake of this size is for the total of our export urea. This is the first and last offtake agreement that we will necessarily need to execute in order to secure our component of funding for the project. However, it does not exclude us securing other offtake agreements and we are still in offtake discussions with other parties.
2. Along with an offtake agreement, because of the exceptionally low cost (A$109/t) of our carbon neutral fertiliser, and the concomitantly high margins, it is our belief that this will provide sufficient certainty for financiers.
3. We will announce, early next year, our marketing plan for our total production. That plan will include this agreement. It is also expected to include a new low cost urea distribution to the Australian market.
4. When the Pre-Feasibility Study (PFS) was completed for LCK, urea prices in Australia were A$489 per tonne. Urea prices are now over A$1,300 per tonne. Whilst it is difficult to forecast future urea prices, all the indicators show that prices will remain high (if not as high as current prices). Many urea plants in Europe are now in care and maintenance because of a shortage of gas and high prices. Gas prices in Asia have increased dramatically over the last year and China has stopped exporting urea. Finally, Henry Hub gas prices in the United States are close to record highs.

Trading Halt this morning pre-open pending a "material announcement on an offtake agreement".

DISC: held in my SMSF