FAQ – Termination of TinCom Joint Venture

The below Frequently Asked Questions relate to the announcement on Tuesday 31st May titled ‘Termination of Tincom Joint Venture‘.

ECT has decided to terminate the agreement with Tincom in the light of two conditions precedent which were not met by Tincom. Can you take us through your decision and the reasons for the termination of the joint venture?

Two of the conditions precedent were not fulfilled. It is now over 2 years since we commenced discussions with Tincom , and progress towards establishment of the project has been unacceptably slow. As such the Directors of ECT have decided it is not in the best interests of ECT and its shareholders to further extend the time for satisfaction of these fundamental conditions of the JVA. Specifically, the provision of further funding and a formal opinion on the Parent Company Guarantee. Secondly, a provision of the JVA requiring the entering into a Design for Tender agreement with consulting engineers Arup by 30 April 2011, which we did extend to 30 May, was not satisfied.

This is a significant decision for the company. Where do you go from here and what what does this mean in terms of short-term commercialisation of the Coldry technology? Is this a setback?

While it is disappointing that the JVA has terminated, the opportunities for establishment of a commercial scale Coldry project are stronger now than they have ever been before. During the period of engagement with Tincom, ECT continued actively to work on the commercialisation of Coldry, and many aspects of the Victorian project were progressed, especially design and construction requirements. The end of the JV frees up ECT to explore a number of other promising commercial opportunities, directly with large Asian coal buyers with a history of investment in mine and transport development, that have emerged in the last two years.

It is our intention to move forward with our Victorian Coldry Project by directly engaging Arup to produce the Design for Tender, and for McConnell Dowell to price the construction of a commercial scale Coldry facility.

Earlier in the week you signed a coal supply agreement with China Datang Corp, a Fortune 500 company. What are some of the key points of this agreement and what does this represent for ECT? Is this a better prospect for commercialising Coldry in the near term?

Yes, we announced on 25th May, China Datang Overseas Investment, one of China’s largest power companies, have entered into an agreement to test burn Coldry in one of their power stations, and this testing, which we expect to yield concrete validation of the viability of Coldry, is targeted for September. Datang and a number of other global power companies have expressed interest in the project, and we expect to engage financial advisers to manage project development during June 2011. While it is unfortunate that the joint venture with Ticom has been terminated, we are excited by these other opportunities and believe pursuing them will ultimately enhance shareholder value more than the Tincom proposal.

Would you consider this JV termination a major setback for ECT shareholders? The share price has dropped significantly on the back of this announcement. How can you placate shareholders?

Ultimately, delivery of a project and its subsequent revenue will translate into a fundamental valuation and reflective share price. We are moving ahead with the project and aim to meet the previously stated time frames.

Is this a sign that any brown coal technology is going to struggle, no matter how environmentally sensitive? Are Governments around the world leaning more toward supposedly carbon friendly options like wind, gas and solar?

This is an interesting and complex question. The termination of the JV with Tincom in no way reflects upon the Coldry technology itself. We have stated repeatedly in the past that capital intensive, long lead time projects require a certain approach, especially when you’re commercialising a first-of-a-kind technology. It is true that Governments are understandably focused on renewables, which are projected to grown by 80% between now and 2030. At that stage renewables will still only make up 13% of total world energy production. Coal-based power generation is projected to increase by 42% over that same time. The problem here is there will be more competition for a diminishing thermal coal resource and price increases will make burning wet brown coal more attractive to emerging nations. Coldry is ideally positioned to mitigate emissions from that growth.

What does the current push to introduce a carbon tax mean for ECT and Coldry?

From an export perspective, a domestic carbon tax neither helps nor hinders the project. The Coldry process produces a black coal equivalent pellet that has a net beneficial carbon foot print compared to brown coal.

Domestically, it appears a carbon price of at least $30 to $40 is needed for existing brown coal generators to switch to gas and wind.

Least cost abatement is the name of the game and we believe Coldry offers the cheapest abatement cost for the brown coal generators and the biggest single CO2 reduction opportunity for Australia, potentially slashing our nations emissions by around 35%, without breaking the household budget or stranding Victoria’s vast brown coal reserves.

In the context of Victoria’s legislated 20% CO2 reduction, a Coldry-based solution would cost less than a gas-wind proposal. If deployed to replace all of the old brown coal power stations, the cost would drop to around $10 per tonne of CO2 saved.

Do you support a tax on carbon dioxide emissions?

If the goal is to reduce CO2 emissions then there needs to be a mechanism, a price signal, that triggers action by making cleaner technologies an economically attractive option.

Make no mistake. While the CO2 tax is levied on emissions from business activity, it will be passed on to households. Households will then vote with their wallets, which will drive business to seek least cost CO2 abatement measures to remain competitive.

Any action we take as a Nation should be at ‘least cost’ while ensuring we maintain as much of our international competitiveness as possible. We believe Coldry can help achieve this by keeping Victoria’s electicity prices lower, which will help keep the manufacturers in the State and in Australia.