Linc Energy

[Boon]

Linc Energy Studies Offers for Its $412 Million Coal Unit

By James Paton Aug 7, 2014

Linc Energy Ltd. (LNC) said it’s studying bids for its Australian coal assets, which it valued last year at about A$440 million ($412 million), as the company focuses on oil and gas projects.

Linc, which has a market value of S$765 million ($613 million), has been considering options for its New Emerald Coal Ltd. business, including a sale, an initial public offering or a joint venture. The coal unit has 27 exploration permits in Queensland state and last year acquired the shuttered Blair Athol mine from Rio Tinto Group with plans to reopen it.

“We’ve got bids in, and we’re assessing them,” Chief Executive Officer Peter Bond said yesterday by phone from Brisbane, declining to name any interested companies. “People who are interested are interested as a cyclical play.” ...............................................

http://www.bloomberg.com/news/2014-08-07...-unit.html

(vested)

[greengiraffe]

The great Australian coal race is on

PUBLISHED: 9 HOURS 34 MINUTES AGO | UPDATE: 8 HOURS 57 MINUTES AGO

The great Australian coal race is on
CEO of Adani Australia, Jeyakumar Janakaraj . . . ‘The earlier we hit the ground to get the coal out the better.’ Photo: Dominic Lorrimer
MARK LUDLOW
Two of Australia’s richest people – Gina Rinehart and Clive Palmer – and Indian billionaire Gautam Adani are massing troops in the battle for the Galilee.

Yet many had thought coal was dead. Slumping prices, cancelled projects and a ­global push by governments to cut carbon emissions had cast a pall over the future of the coal industry.

Global mining giants BHP Billiton and Rio Tinto had shut down or shelved projects in Queensland’s coal heartland, the Bowen Basin. Former coal baron Nathan Tinkler, who was last year forced to sell his minority stake in Whitehaven Coal to pay off ­­cred­itors, had fled the country.

And Australian banks like the Bendigo and Adelaide Bank had started backing away from financing coal projects to assuage investors’ concerns that they are ­contributing to climate change.

But the biggest coal project ever undertaken in Australia, Adani’s $16.5 billion ­Carmichael coalmine in the Galilee Basin, some 500 kilometres from the Queensland coast, appears to be moving ahead.

The numbers are staggering. The two walls on the Carmichael coalmine will be 6 kilometres long, 350 metres wide and 70 metres deep. It will put Australia in the same league as the Powder River Basin mines in the United States, which can export up to 100 million tonnes a year.

It will also pit Adani directly against ­environmentalists who claim the Queensland and federal governments are fast-tracking projects, including GVK Hancock’s nearby $6 billion Alpha mine and Palmer’s $6.4 billion Waratah project, to fill their coffers at the expense of destroying the World Heritage-listed Great Barrier Reef.

Environmentalists say there will massive dredging of the seabed and shipping highways through the reef to export high-quality thermal coal, which will end up in power ­stations across Asia.

But Adani, which claims it will abide by the Australian government’s rigorous environmental standards, argues the world is crying out for affordable energy.

“There is close to 20,000 megawatts of power [in India] that is waiting for the right type of coal at the right price,” Adani’s Australian chief executive, Jeya­kumar ­Janakaraj tells AFR Weekend in an exclusive interview.

While air pollution in Beijing might be causing the Chinese government to turn off coal-fired power stations around the capital, future demand from elsewhere in China and India, where new Prime Minister Narendra Modi has promised to connect 300 million Indians who do not have access to power, is expected to drive the approval of the three new mega mines in the Galilee Basin.

The Galilee Basin has previously been an untapped resource, mostly because it requires $10 billion worth of infrastructure to build the mines and rail lines to transport coal to ports.

But with demand for high-quality thermal coal expected to double over the next 15 years, the Galilee Basin is set to become the next frontier for the Australian resources sector. “It could well be the Galilee Basin is the salvation of the mining part of the resources sector in Queensland,” Queensland Resources Council chief ­exec­utive Michael Roche says.

If given the final go-head next year, the Carmichael coal project will export up to 60 million tonnes of coal a year.

Federal Environment Minister Greg Hunt approved Adani’s Carmichael coalmine in July, subject to 36 strict conditions, especially in relation to groundwater.

This follows earlier approval for the project by Queensland’s Co-ordinator-General. (Adani still requires final environ­mental approval and a mining lease from the state government.)

But the Galilee will also be targeted by environmentalists who are using high-tech methods to escalate their war against coal, which they believe is an outdated form of energy that should be replaced with more expensive solar and wind power.

Queensland Deputy Premier Jeff Seeney is all too aware of the high-stakes game being played in the Galilee Basin.

The Liberal National Party (LNP) government has cut red tape for the major players. It has also been involved in a major dispute with Palmer over the preferred rail route to ferry the coal to the coast.

The Newman government ended up choosing GVK Hancock’s plan – a joint ­venture with national coal haulage company Aurizon.

This contributed to Palmer leaving the LNP and setting up his own political party, the Palmer United Party, which now holds the balance of power in the Senate. (For good measure, Palmer is also suing Seeney and Premier Campbell Newman for ­defamation.)

All the players in the Galilee know the benefits of being the first mover. They can build the infrastructure and the others will use it. To encourage an investment decision sooner rather than later, the Queensland government is also offering a royalty discount for the first-mover in the Galilee.

“There will be huge economic benefits to Queensland for the next 100 years – the next two to three generations – if it’s developed,” Seeney says.

Apart from the obvious economic ben­efits – which Seeney admits is more to do with the thousands of jobs created than royalties into state coffers – the Deputy Premier also makes the altruistic pitch in ­selling the Galilee dream.

“We also think it’s a good thing to do,” he begins. “In Queensland we have a resource the world needs and wants, particularly in developing countries such as India.

“For Queensland and Australia to play its part in lifting 300 million people out of poverty is something I’d be very pleased to be a part of.”

Adani’s Jeykumar Janakaraj says Modi’s promise to improve India’s infrastructure and connect power to poorer regions will be a catalyst for change and the Galilee Basin can help fill the void.

“The earlier we hit the ground to get the coal out the better.”

Adani is keen to build a standard gauge rail line to Abbot Point – which will be the main export hub – before its rival GVK does, and has teamed up with Korean construction group Posco to build the 388-kilometre North Galilee Basin Rail link.

Meanwhile, GVK has joined forces with Aurizon to build a 300-kilometre narrow gauge railway link from its mines in the ­Galilee Basin to connect with Aurizon’s existing network and an export terminal at Abbot Point. Aurizon will have a majority stake in the rail and port infrastructure and haul coal, with export capacity expected to run at 60 million tonnes annually.

GVK’s investment in the Galilee is music to the government’s ears. It predicts the investment will create 20,000 direct and indirect jobs through its three mines – two of which are joint ventures with Hancock Coal (Alpha and Alpha West) and Kevin’s Corner on its own – and deliver more than $40 billion in taxes and royalties over the duration of the project.

“We remain firmly committed to the development of our Galilee Basin coal assets and we are continuing to develop our projects to a point where construction can commence,” a spokesman for GVK says.

Palmer’s project is not as advanced as the GVK or Adani proposals, but he claims he still plans to develop the project, which would be capable of exporting up to 56 million tonnes of coal a year.

True to form, Palmer says his project is being neglected by the Queensland government in favour of Adani and GVK. ‘It will only happen if the Newman government allows other projects to go ahead. At the moment, they only seem to be supporting the Indian projects which clearly don’t have the money,” Palmer says.

The big question mark over all the ­Galilee projects is finance. Seeney says it’s up to Adani, GVK and Palmer to sort out their own project funding. Critics point to the plunging price of thermal coal, which is down to $US70 a tonne – well below the $US120 to $US130 a tonne which previously made the Galilee Basin a much more attractive option.

Rumours have been swirling around the resources sector for the past few years that neither Adani nor GVK were going to be able to get their projects across the line.

Even a betting person wouldn’t have a flutter on all three of the big Galilee mines going ahead in their current form, especially Palmer’s Waratah Coal. But both Adani and GVK say their projects stack up.

Adani has already invested $1.05 billion in the Carmichael mine, and about $2 billion in Abbot Point, where it operates one export terminal and is building a second one. The group now needs to raise another $3 billion to pay for the development of the mine.

It expects to get most of the financing from overseas banks and make a final investment decision in 2015.

GVK has also secured a coal terminal at Abbot Point. It says financing arrangements will be completed once the Aurizon rail joint venture and environmental approvals are finalised, with an update expected later in August.

Roche dismisses the critics of the impending Galilee Basin coal revolution. “These are projects that are not going to reach financial close on the assumption of today’s coal prices,” he says. “The current over-supply in thermal coal is temporary. The demand from China, India and Korea for imported coal is going to outstrip GDP growth.”

Roche says the Galilee projects are of a scale never seen before, driven by Asian demand. Resources forecasters HDR Salva predict India’s imports of thermal coal will go from 136 million tonnes last year to 425 million tonnes in 2030, while Chinese imports will explode from 212 million tonnes last year to 545 million tonnes in 2030.

Australia is in a great position to take advantage of the Asian boom, with its high quality coal a more affordable option than the countries building their own mines, he adds. “This project [Carmichael mine] is a project that can churn out 60 million tonnes a year for 60 years. There is nothing like this project any where in Australia,” he says.

“Yes, there is a lot of infrastructure to be built, but it’s all about economies of scale to try and drive your unit costs down. And it can be delivered onto the Indian coast where they are going to be building the power ­stations.”

Roche says now is the time to be building the new mines in the Galilee basin as the three big liquified natural gas projects in Gladstone near completion, and while there are no new metallurgical coalmines in the Bowen Basin on the horizon. “Now is a great time to be building the mine to get competitive construction costs,” he says.

But the massive potential of the Galilee Basin to unearth other sources of dirty coal, which will increase Australia’s carbon footprint and increase the number of coal ships through the World Heritage-listed Great Barrier Reef, has enraged environmental groups and activists.

Meanwhile Queensland Greens Senator Larissa Waters says the state and federal governments have rushed through the approval of the Galilee mines lured by the potential economic benefits.

Ms Waters says there is enough evidence of environmental damage from dredging and dumping at Abbot Point coal terminal in North Queensland as well as land-clearing in the Galilee Basin for the mega mines to be put back on the shelf.

Citing the warnings from UNESCO about port expansions near the Great Barrier Reef, she says Australia should focus on boosting its competitive advantages in renewable energy. “I think we should absolutely not be opening up the Galilee Basin. It’s a climate crime in my view,” she says.

“There’s a range of environmental problems and the economics don’t stack up. Adani’s project is going to take out 12 billion litres of water every year on its own. It was a premature approval which I don’t think should have been granted.”

Seeney angrily rejects suggestions the state’s rigorous environmental process has been sidelined to push through the mega-mines and what he calls misinformation being spread about damage to the Great Barrier Reef. The environmental lobby has been hijacked by people who want to attack any carbon-based fuel source, he argues.

“It’s all very easy for so-called green groups sitting in middle-class suburbia to philosophise about the different energy sources, but the fact is coal will be a major part of the world’s energy supply for a long time to come,” Seeney says.

“If we don’t produce the coal in Queensland then that coal will be produced somewhere else.”

The Australian Financial Review

[psolhawk]

http://infopub.sgx.com/FileOpen/2014.08....eID=309351

In this announcement today, it is mentioned that the interest rate is over 9%. I feel it is kind of high and like to ask buddies if anyone knows an appropriate figure this should be going at? If Linc Energy was to go for bank loans, will it be lower than 9%?

[Boon]

http://infopub.sgx.com/FileOpen/2014.08....eID=309351

In this announcement today, it is mentioned that the interest rate is over 9%. I feel it is kind of high and like to ask buddies if anyone knows an appropriate figure this should be going at? If Linc Energy was to go for bank loans, will it be lower than 9%?

hi psolhawk,

Details of current Note issuance :
- Amount = USD 125 million
- Interest rate = 9.625%
- Due in Oct 2017
- Issuers = the Company’s wholly-owned subsidiaries Linc USA GP and Linc Energy Finance (USA), Inc.
- The notes are secured by the Company’s oil and gas assets in the United States,
- The notes are fully non-recourse to Linc Energy Ltd.

Use of proceeds:
- To fund capital expenditures,
- To repay existing debt and
- for general corporate purposes.
_______________________________________________________________________________________________________________

Linc’s has conventional O&G assets in the USA only.

These assets have been used as collaterals to secure the following loan facilities in the USA
1) USD 80 million revolving credit facility (first lien) – bank loan
2) USD 265 million (12.5% interest rate) – Senior High Yield Note (issued last year)-redeemable by the Group after 30-April-2015.
3) USD 125 million (9.625% interest rate) – Senior High Yield Note – current issuance.
_______________________________________________________________________________________________________________

Comments:
1) No idea on the interest rate of the revolving credit bank loan. – should be lower I reckon.
2) At least the 9.625 % interest rate is LOWER than the 12.5% interest rate of Senior High Yield Note issued last year – I believe Linc would refinance expensive Notes with less expensive one at appropriate redeemable date.
3) E&P is a high risk industry - exploration phase is the most risky – for a new start-up, this is usually funded with equity only.
4) For development and production phases – could be funded with debt - Reserve based lending.
5) Capacity (borrowing base) and cost of borrowing would be determined mainly by quality and quantity of reserve as collateral – the more PROVEN reserve (1P reserve) the better.
6) Once more reserve could be proven up (migration of reserve from 2P to 1P) – opportunities to borrow more at lower cost would increase.
7) That said, I guess no two deals are exactly the same – there is a continuum between a development-loan for a single undeveloped field, at one end – and a borrowing base of a portfolio of producing fields, at the other end.
8) The latest issuance would put Linc in a position to increase production and improve cash flow from its conventional O&G division.
9) If Linc could divest away its coal assets (which it is currently trying to do) - even at 25% discount to its current valuation – cash flow for the Group would be improved even more significantly.

I could be wrong - but this how I understand it.

(vested)

[Boon]

I guess I should add the following

1) The above loans of USD 80 + 265 + 125 = USD 470 million are borrowed by Linc’s subsidiaries in the USA and secured by the O&G assets in the USA owned by the subsidiaries.
2) The above borrowings are FULLY NON-RECOURSE to Linc Energy Ltd.
3) If the borrowers (Linc’s USA subsidiaries) defaulted, the lenders could seize the collaterals (the USA assets).
4) If the collaterals could not cover the defaulted amount – the lenders could not seek out any further compensation from Linc Energy Limited.
5) In absolute terms, 9.625% and 12.5% interest rate may look high – but on risk adjusted basis, it may not be so.
6) To Linc and its shareholders, the downside risks are capped or limited to losing all of its O&G assets in the USA - but the upside risks could be huge if productions (hence OCF) could be increased many folds and/or more Reserve could be Proven-Up (migration from 3P to 2P ; migration from 2P to 1P).
7) The asymmetrical risk-payoff profile under current arrangement seems to be skewed in favor of the borrower rather than the lenders.
8) Looking from another perspective – lenders do have to build in enough MOS in their risks management - the fact that the lenders are willing to take on such risks could possibly mean that, in the eyes of the lenders, the value of collaterals (after discounting with appropriate MOS factor) is sufficient to cover the amount borrowed. As Peter Bond, the CEO of Linc Energy, said, “The Company is pleased with the strong demand for the new notes by the market. This is a further reflection upon the overall good quality of Linc Energy's oil and gas assets and management in the USA.”
9) So, is the “high” borrowing + “high” borrowing costs of Linc’s USA subsidiaries (which are fully non-recourse to Linc Energy Ltd) a concern or a bad thing?
10) Interest rate for Senior Note has actually decreased from the previous issuance of 12.5% to the current issuance of 9.625% - it would be nice if no more capital would be further needed to unlock values from these assets – but if more capital were needed to develop these assets into ones which could generate positive OCF on a more sustainable basis – in this high-risk-high-return industry – wouldn’t it be better to risk someone else’s money? After all, who is risking (or exploiting) whose money (for a cost, of course) for whose potential upside benefits?

(vested)

[Boon]

Adani’s North Galilee Rail Project, linking Carmichael Coal Mine to the Abbot Point coal terminal, gets state approval

August 14, 2014

A RAILWAY linking what will be one of the world’s biggest coal mines to a port on the Great Barrier Reef coast has been approved.

Queensland’s Coordinator-General has given the nod to Indian firm Adani’s 300km rail line, called the North Galilee Rail Project, which will link its huge Carmichael Coal Mine with the Abbot Point coal terminal.

The project still requires federal government approval, which is due by September 30.

The $2.2 billion rail line will transport more than 100 million tonnes of coal a year.

Deputy Premier Jeff Seeney says the project, which will create up to 2400 jobs during construction, will unlock the vast, resource-rich Galilee Basin.............................................................

http://www.couriermail.com.au/business/a...7024050193

(vested)

[Boon]

Adani ramps up PR campaign for Carmichael mine, rail project

By Jonathan Hair and Brock Taylor, 20-Aug-2014

Indian mining company Adani is stepping up its efforts to gain the trust of the public for its coal projects.

Chief executive Sandeep Mehta will address a community meeting in Bowen today, with an update on its proposals.

The company has also launched a state-wide television ad campaign spruiking jobs and royalties expected to be generated by the projects.

Adani says the ads aim to build community confidence about its commitment to jobs and investment in the state.

Frank Alpert from the University of Queensland says it shows Adani takes the Carmichael mine and rail project very seriously.

"It shows the company cares about this project," he said................

http://www.abc.net.au/news/2014-08-20/ad...ction=news

(vested)

[learner88]

Linc Energy CEO: Singapore listing was a strategic move - http://www.cnbc.com/id/101935644

The man behind Linc Energy's comeback - http://video.cnbc.com/gallery/?video=3000304536

LINC ENERGY AGREES TO SELL ITS CARMICHAEL MINE ROYALTY TO ADANI FOR AU$155M

Unfortunately, Mr Bond decides to cash in early on the Carmichael mine royalty. AUD 155M is S$180.5M, which is 31c/share. Based on psolhawk's model, it seems that Mr Bond used a much higher discount rate of 30% to discount the future cashflow for the mine.

[psolhawk]

Linc Energy CEO: Singapore listing was a strategic move - http://www.cnbc.com/id/101935644

The man behind Linc Energy's comeback - http://video.cnbc.com/gallery/?video=3000304536

LINC ENERGY AGREES TO SELL ITS CARMICHAEL MINE ROYALTY TO ADANI FOR AU$155M

Unfortunately, Mr Bond decides to cash in early on the Carmichael mine royalty. AUD 155M is S$180.5M, which is 31c/share. Based on psolhawk's model, it seems that Mr Bond used a much higher discount rate of 30% to discount the future cashflow for the mine.

This is a tad disappointing. Although I have not invested in this company, this somehow speaks volumes of what Mr Bond thinks of his assets. Good assets like this royalty is worth 20% of what we estimate it to be. Great assets that he is keeping could also be worth significantly lesser than what we make it out to be.

[greengiraffe]

Linc Energy Ltd Neutral
LINC.SI, LNC SP
Linc Energy sells Carmichael Royalty to Adani for
A$155M vs. JPM est. of A$287M
Price: S$1.24
Price Target: S$1.45
Singapore
Exploration & Production
Ajay Mirchandani AC
(65) 6882-2419
[email protected]
Bloomberg JPMA MIRCHANDANI <GO>
J.P. Morgan Securities Singapore Private
Limited
Scott L Darling
(852) 2800 8578
[email protected]
J.P. Morgan Securities (Asia Pacific) Limited
James R. Sullivan, CFA
(65) 6882-2374
[email protected]
J.P. Morgan Securities Singapore Private
Limited
YTD 1m 3m 12m
Abs -18.7% -1.6% 0.4% 2.9%
Rel -24.0% -1.3% -1.7% -7.2%
Linc Energy Ltd (Reuters: LINC.SI, Bloomberg: LNC SP)
A$ in mn, year-end Jun FY12A FY13A FY14E FY15E FY16E
Revenue (A$ mn) 57 124 324 532 522
Gross Profit (A$ mn) 25 65 137 155 164
Gross Margin 44.5% 52.3% 42.4% 29.2% 31.4%
EBITDAX (A$ mn) (59) 23 104 131 138
EBIT (A$ mn) (83) (56) 44 56 58
EBIT Margin (145.7%) (45.2%) 13.6% 10.5% 11.1%
Core Profit (A$ mn) (62) (64) (5) 10 12
Core EPS (A$) (0.12) (0.12) (0.01) 0.02 0.02
P/BV (x) 1.2 1.2 1.2 1.2 1.2
ROE (12.9%) (14.5%) (1.0%) 2.1% 2.4%
Net Debt/Equity 35.5% 79.8% 73.0% 83.2% 116.5%
ROA (9.3%) (7.1%) (0.4%) 0.9% 1.0%
Source: Company data, Bloomberg, J.P. Morgan estimates.
Company Data
Shares O/S (mn) 575
Market Cap (A$ mn) 611
Market Cap ($ mn) 568
Price (S$) 1.24
Date Of Price 27 Aug 14
Free Float(%) -
3M - Avg daily vol (mn) 0.49
3M - Avg daily val (S$ mn) 0.61
FTSTI 3323.02
Exchange Rate 1.25
Price Target End Date 30-Jun-15
See page 5 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that
the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision.
1.0
1.2
1.4
1.6
S$
Aug-13 Nov-13 Feb-14 May-14 Aug-14
Price Performance
LINC.SI share price (S$)
FTSTI (rebased)
 Sale of Carmichael Mine Royalty to Adani for A$155M: Linc Energy
has entered into a binding Option Deed with Adani Group for the
transfer of Linc Energy's benefits in and obligations under the
Carmichael Royalty Deed to Adani. Adani will pay A$155 million
consideration in two installments: A$90 million in cash within five days
of the exercise of the Option and the balance of A$65 million in cash on
or before 12 months from the date of signing. This is the first of a
number of transactions that the company is looking to undertake in the
short to medium term. The deal highlights that the company is looking
to simplify its business and focus on the development of core assets,
including its shale exploration venture in South Australia.
 High gearing, delay in coal asset portfolio sale and need for cash
drives Carmichael sale in our view. Linc Energy’s current net debt to
equity stands at 79.8%. With the coal asset portfolio selldown delayed,
we believe the company has undertaken the sale of Carmichael Royalty
assets to Adani.
 A$155M sales proceeds vs. J.P. Morgan estimate of A$287M for
Carmichael assets: While the company highlights this transaction as a
positive development, the proceeds from the sale stand at A$155M vs.
J.P. Morgan estimate of A$287M. This leads to a shortfall of A$132M
which translates approximately to S$0.25 per share within our current
price target of S$1.45 per share.
 Reiterate Neutral: Sale is positive for cash proceeds but negative to
valuation. Our SOTP-based Jun-15 price target of S$1.45 implies a
1.2x/1.1x FY14E/FY15E and 14.8x/11.7x FY14E/FY15E EV/EBITDA.

Not Vested
GG