Shareholder Q&A

Following on from recent Q&A sessions, the Company encouraged ‘Hot Copper’ participants to send in questions earlier this week.

Some answers may not be able to be disclosed due to sensitivity or disclosure obligations.

Questions have been edited for clarity and brevity.

As always, shareholders may call or email questions to the Company at any time.

Q1) by ‘arion’

In the past, you mentioned Hydrogen and fertiliser from brown coal. Does ECT with Energy Australia look forward to this breakthrough by CSIRO?

“AUSTRALIA’S CSIRO hydrogen transport breakthrough may have a larger impact on international markets than the local take-up of hydrogen fuel-cell electric vehicles (FCEVs), according to principal research scientist Michael Dolan.

Last week, the CSIRO, in conjunction with Hyundai and Toyota who provided test fuel-cell cars at a Brisbane event, announced the ground-breaking ability to contain hydrogen in ammonia, then release the gas at the point of delivery.

Ammonia – used for fertilisers, cleaning products and nitric acid production – is certified for transportation at shipping ports and road-transport docks around the world, whereas hydrogen needs to be packaged into high-pressure containers or through underground reticulation.

The CSIRO technology makes it viable to move hydrogen to overseas markets and throughout Australia. The key is how easy it is to extract the hydrogen from the ammonia which makes it convenient for refuelling cars.

It is the first time a method to easily transport hydrogen has been perfected and, the CSIRO said, immediately opens up world markets for Australian-produced hydrogen.

Link: https://premium.goauto.com.au/aussie-scientists-create-energy-bonanza/

Answer:

As the article you provided suggests, Hydrogen has huge potential as an alternative to petrol and diesel, and to battery electric vehicles.

In addition to CSIRO working on the ‘transport and storage’ challenge, the likes of KHI are working on the production and logistics as well.

We see two potential opportunities for ECT in this space:

  • Coldry, as the gateway drying process for ‘traditional’ gasification processes such as that being piloted by KHI (link)
  • COHgen; subject to R&D outcomes and a supportive techno-economic analysis, COHgen may provide a more efficient production method than the ‘traditional’ gasification-steam reforming process.

We talk a bit about hydrogen here:

Q2) by ‘pies’

  1. Regarding the extension of the Project Agreement to allow time for NLC to complete their processes, is it looking very likely this will get done is it likely to be close to October 31st or can we expect it earlier, during September?
  2. If all goes well and the India R&D plant is built and functioning as expected will we have to go through all the channels delays again to get to commercial stage?
  3. If the Research Collaboration Agreement is not signed by end of October what then?
  4. Have the delays effected our bottom line greatly with the amount of work and effort required?
  5. On the home front there seems a lot happening; could we survive and thrive in Australia if need be?
  6. To generate cashflow from the repayment of ELF loans, would it be a good idea to let ELF holders pay down their loan in lots of say, 500,000 rather than the total amount of shares at one time?

Greatly appreciate your time.

Answer:

  1. Our stated target date is October 31st. This date was supported by NLC and as such we don’t expect that it will be much earlier, although it is possible.
  2. We’ve previously mentioned that the Project Agreement provides the framework for articulation from the R&D phase to the commercial phase. The commercial phase will still be subject to the prevailing processes at NLCIL, NMDC and the Indian Government as well as the typical requirements that any project would need to consider ahead of investing in a commercial plant.
  3. The Board will make an assessment based on the information at hand and make decisions based on the long-term interests of shareholders. Like we did last week, we will make this assessment well ahead of the deadline.
  4. The amount of work and effort required for the project has not changed. We’ve mentioned in our announcements that we do not expect the current extension to have a material impact on the India project and parallel activities continue in support of project commencement following financial close, including:
    1. Further refinement of Matmor retort engineering to support detailed design
    2. Continuation of the site & civil engineering preparations
    3. Commencement of value engineering program with Indian firm Geofiny
    4. Recruitment of project personnel
    5. Preparation and establishment of Project Control Committee
    6. Establishment of Project Steering Committee with weekly joint meetings
  5. The delays, however, have stretched our group budgets and resources and because of this, we take any delays in India very seriously.
  6. There are opportunities in the local market, initially via sales of test product from the Coldry pilot plant (link) and, subject to the finalisation and outcome of the feasibility study for the Latrobe Valley project, higher sale volumes into the industrial fuel market. Supply to power generators for electricity production remains uncertain due to ‘shifting’ energy policy, however, Coldry is suitable as fuel for a HELE power station and as a feedstock for higher-value coal conversion processes.

Q3) by ‘satin tape’

  1. What is the likelihood of a commercially binding contract related to actual project development being complete this year?
  2. If the Indian partners decide at the 11th hour that this project is not for them what are the repercussions for the company? For example, would some financial compensation be available or would the company have to start again with its current resources?
  3. Repetition of first-of-a-kind is not satisfactory for the lengthy delays. Paraphrasing for a moment, it was said that finalisation would be complete in October 2016. We are now approaching October 2018 and looking at a similar situation.
  4. If this is another year with a concrete deal not yet finalised what would you expect a reasonable shareholder to desire from current management? Options include (but are not limited to) resignations, reductions of operating expenses and the employment of new talent to the management team. Would any of these steps be considered?
  5. Taken from Simply Wall Street this graph (below) indicates the revenue and expenses for the company since 2012? Aside from the missing revenue prior to mid-way in 2013 is this representation accurate?image from simply wall street

Answer:

  1. The current target date which all three partners support is 31 October 2018. The Company will continue to provide guidance based on information at hand, with subsequent updates if there is a material change.
  2. Our partners reaffirmed their commitment in the 15 August 2018 announcement. Financial penalties are common for low-risk infrastructure projects. R&D requires a collaborative effort, reflective of the higher risk profile. Penalties, in this context, are not conducive to collaboration.
  3. We understand that some may not like certain facts. Perspective is important. The likes of the Australian High Commission, Austrade and the Australia India Business Council, who spend a lot of effort helping facilitate business engagement, support our view that we are progressing well despite the delays. We also understand that for a company like ours, the pace in delivering outcomes is an important factor in measuring our performance regardless of the complexities we face in achieving our goals. We are acutely aware of the need to get this balance right.
  4. We trust our shareholders understand the challenges of commercialisation, doing business in India and navigating cultural and political complexities and will understand that it is important that we continue to support our partners with the spirit of true partnership. We take a ‘frugal innovation’ approach. For context, the Hybrit pilot in Sweden aims to deliver a 1-2 tonne per hour plant at a cost of $210 million, then scale to commercial capacity by 2035. We’re aiming to achieve the same for $35 million and in shorter timeframes. The company continually reviews how we allocate human resources across the business and we have completed a number of role restructures and recruitment of new staff over the last 12 months to better support the Indian project. Additions of Martin Hill as CFO & Company Secretary and the resignation of Ashley Moore from the ECT Board to focus on India, are but two examples of this approach. As we have also advised the market previously, we are aiming to restructure the Board progressively towards that of a Board of governance, which aims to improve the independence and separation from the executive. We continue to work towards this outcome and changes are made as and when It makes sense to do so. 
  5. Please refer to our audited Annual reports.

Q4) by ‘Thunderbirdsarego’

On August 15, 2018, being the last answered Q&A you stated that you were managing uncertainties around changing timelines.

  1. What new uncertainties around timelines have surfaced since your last Q&A?
  2. Why is NLCIL unable to specify a timeline instead of using loose statements such as, ” as soon as possible”?

Answer:

  1. Other than the request from NLCIL to extend the Project Agreement for the reasons stated in our ASX announcement on that matter, we are not aware of any new matters that may cause further delays to the current target date of 31 October 2018.
  2. The target date of 31 October is a specified timeframe. The statement ‘as soon as possible’ refers to the intent to deliver earlier if possible.

Q5) by ‘chrisatchch’

  1. Have you discussed with NLC about this situation and how frustrating it has been for shareholders? Does NLC know how painful it has been on our side with delays after delays?
  2. What confidence can you give us that October would be the grand final?
  3. Why Not ECT talk to one of NLC top board member with someone who has a good relationship with ECT Either Ashely or Glen?
  4. What was NLC explanation that they couldn’t review from May 31 till August 31?

Answer:

  1. We have shared this perspective with them.
  2. The Company has managed the uncertainties around changes in timeframes by providing ongoing guidance based on information at hand, with subsequent updates if there is a material change. To the extent that we can rely on the information we now have at hand, we are confident that all parties can deliver to the current target date of October 31.
  3. ECT is already dealing at Director level.
  4. Our announcement on 15 August 2018 stated: ‘The delay was due to longer than anticipated lead times caused by the transition of new personnel into the roles of Chairman-Managing Director, Director, Projects and Planning and Director of Mines’.

Q6) by ‘giddiyup’

  1. Seeing as NMDC was ready to grant approval at board level and have mentioned that they will convene a board meeting as soon as NLC have completed their internal review, has this put pressure (not direct obviously) on NLC to speed up their review process?
  2. The new date has hopefully been set as a worst-case scenario, is it possible to be finalised before October?
  3. Are you able to give a rough date as to when we will see concrete being poured, i.e. within three months or are we potentially looking at more than 6 months? At this stage, if no more hold ups, how immediate could that be?

Answer:

  1. NLCIL will take the requisite time to complete their requirements and understand our urgency to proceed. NMDC’s support for progress adds to our confidence that the partners will meet the October 31 target date.
  2. Yes, it is possible.
  3. We will release a project overview, including broad timelines, following financial close.

Q7) by ‘giddiyup’

Has there been much contact in Australia in regard to using Coldry in the energy mix (especially recently with all the energy talk on the political front) or is this not possible while waiting for construction to start and not knowing timeline or our technology not yet being commercialised?

Answer:

We are continuing to trial Coldry solid fuel in auxiliary boiler systems across Tasmania and Victoria which has led to establishing our recently announced steam package contract. We will continue to develop this market, using the High Volume Test Facility in Bacchus Marsh. In doing so, this supports the previously outlined feasibility study for the large-scale demonstration of Coldry in the Latrobe Valley. This project would focus on industrial energy applications rather than electricity generation, though could act as a basis for expansion to support a HELE power station if the opportunity arose.

Q8) by Plext

With all the Government talk and media highlighting the National Energy Market (NEM), will there be more funding to get new technology off the ground?

Answer:

Energy policy is highly uncertain at present. If calls from some MP’s for the government to back a new HELE power station to improve reliability and affordability are successful, we stand ready to support the case for a brown-coal based project.

Q9) by ‘satin tape’

  1. Is the recently mentioned revenue of $1.3 million the cumulative amount over five years?
  2. What amount of profit is on that number? if no finite amount can be given is there a rough percentage of profit that could be divulged?

Answer:

  1. $1.3 million is the value of the deal over 5 years.
  2. Disclosing profit margins on each contract in both $ and % terms is counterproductive to our own commercial interests, particularly as we build into a new market. These numbers will invariably be disclosed, where required, in the statutory financial reports of the company.

Q10) by ‘vacre’

  1. (INDIA PROJECT) How do you intend to create awareness of the India project once the deal has been signed (financial close) and construction about to commence? By “awareness” I am referring to increasing exposure to prospective investors and brokers, can you provide any insight into your strategies?
  2. (INDIA PROJECT) Are the current floods in India a cause for concern regarding financial close?
  3. (INDIA PROJECT) Last time I asked for a simple YES/NO which was dismissed. Are you able to please explain why you cannot provide a simple YES/NO to the fact that our India project may or may not be a project of national significance in India? Why the secrecy surrounding this considering NITI had caused us 12 months of delays? Not having an answer to this very simple question does feel strange, again – why the secrecy?
  4. (BACCHUS MARSH) What is the current rate of production (Coldry) per day in tonnage of the BM High Volume Test facility?
  5. (BACCHUS MARSH) What is the current state of affairs regarding the expansion of the BM High Volume test facility and are you able to provide a timeline on expansion works upcoming?

Answer:

  1. We will be stepping up communications around our activities following financial close. This will include media briefings, presentations at appropriate events, investor roadshows and initiatives such as case studies with Austrade.
  2. These floods are in a different location. NLCIL is subject to monsoon conditions and is set up to manage heavy rains.
  3. There is no secrecy, just no determination at this stage. We continue to proactively navigate India’s bureaucracy where possible.
  4. The rate of production is tied to experimental activity under our R&D program and can vary. The facility is capable of producing up to 15,000 tonnes per annum and the final stage upgrades would likely increase that to 35,000 tonnes per annum, however, the actual rate tolled through the system at any time is directly related to the R&D activities we are undertaking.
  5. Please refer to the most recent announcement on this topic – 29 June 2018.

Q11) by ‘thunderbirdsarego’

Would you please, in 25 words or less, construct a current “statement of belief” for shareholders?

Answer:

Any statements we make on behalf of the company always presume our belief in those statements.

Q12) by ‘roofer’

It’s obvious to me you guys have a bit going on at the moment, thanks for your hard work. My question to you, with information on hand, do you see the conversion price of the C options achievable within the time frame set?

Answer:

We are unable to provide a direct comment on the performance of share price. That being said, we are confident, that with the completion of the India project agreements and further steam package sales domestically, that this will be positive for the share price.

Q13) by ‘john b’

Are you still going to provide shareholders with this information prior to signing or has this been delayed along with the sunset date?

Answer:

We intend to release an update on the Revenue model prior to financial close.

Q14) by ‘SP3’

Will there be Board position movements at this year’s AGM?

Answer:

Every year, including this year, 1/3 of the directors must resign and put themselves up for re-election.

Q15) by ‘marcmarcoz’

In your Corporate Presentation late 2016 you listed a number of future projects.

My question – Is ECT still in contact with these interested parties (we assume they are waiting for the Completion of the Indian Project) and which parties are still interested (A B or C)?

Future Company Projects
A. Australian Plant Opportunities
– Scoping study to start FY2017 for Australian based plants which may include:
– Vic and SA Integrated Demonstration Plant
– Vic Coldry plant integrated with pyrolysis or gasification
B. Indonesia Integrated Industrial Plant
– Large lignite reserves and demand for steel
– Economic plant construction and operations
– Completion of Techno-Economic Feasibility study FY2019
C. European Integrated Industrial Plant
– Large lignite reserves and demand for steel
– Economic plant construction and operations
– Completion of Techno-Economic Feasibility study FY2020

Answer:

Following the demonstration in India, Indonesia and Europe have been identified as highly prospective deployment opportunities. The India project, in addition to being an R&D facility, will provide an ideal marketing tool once commissioned and operating within desired parameters.

Q16) by ‘ruslah’

October 2016 – Mr Fozard stated “The Minister (Piyush Goyal) was again very supportive in his questions and comments, and expressed a desire for us to move more quickly. Indeed, he recommended we make direct contact with his office so that more support may be arranged to accelerate progress.”

Was direct contact ever made with the minister to speed up the process? If not, why not?

Answer:

Yes, Mr Fozard made direct contact with Minister Goyal’s office since October 2016. We believe regular contact is the best form of encouragement for a speedy outcome with official channels such as this.

Q17) via email from Don W

  1. Can we expect to see the Revenue model soon?
  2. Have the weekly updates with our partners, noted in the recent announcement, commenced yet?

Answer:

  1. We will release an update on the revenue model prior to financial close.
  2. This program has commenced.

 

Filed Under: ECT