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___________________________________________________________________ Eco Investor Update A Weekly News Update for Environmental Investors 20
December 2010 - No 14
AGL Energy AGL said that given the strength of its business in NSW it would benchmark its bids against the alternative strategy of organic growth, and only bid at prices that achieved the required returns for shareholders. AGL already has over 1.1 million customer accounts in NSW including 400,000 electricity clients, and plans are also well advanced for the construction of new gas fired electricity generation plant in the state. Its NSW organic growth strategy is to acquire 400,000 to 500,000 mass market electricity customers in the state, install 500 to 750 MW of generation capacity at Dalton, and build the Newcastle Gas Storage facility. AGL also said there was some uncertainty about the ability of GenTraders to pass through future carbon price increases. Its costs for bidding were about $13 million. (ASX: AGK) APA Group Ms McKenzie is a solicitor and experienced in energy market regulation. She is a director of Australian Energy Market Operator Ltd, the national energy market operator for electricity and gas, and was formerly the chief executive of Gas Market Company Ltd, the market administrator for retail competition in the gas industry in NSW and ACT. Mr Crane's background is in investment banking and he was previously chief executive of ABN AMRO Australia (now RBS Group Australia) and BZW Australia. He is a director of Bank of Queensland, Transfield Services and NIB Holdings, and was formerly chairman of Adelaide Managed Funds and Investa Property Group and a director of Adelaide Bank and Foodland Associated. APA Group's estimated interim distribution for the six months ending 31 December is 16.5 cents per stapled security. (ASX: APA). Origin Energy The deal is expected to be earnings per share accretive. It will be funded by new debt facilities that may be partly refinanced with a pro-rata equity raising in the next 12 months. Origin chairman, Kevin McCann said the acquisitions are a transformational event in the growth of Origin as they give the company a leading position in NSW. "Following completion of the transaction, Origin will be Australia's largest energy retailer with 4.6 million customer accounts and will have one of the country's largest and most diverse generation portfolios with more than 5,800 MW of capacity, through either owned generation or contracted rights." Origin is paying $2,300 million for Integral Energy and Country Energy, or $1,282 per customer account. The cost of the combined wholesale portfolio is $0.35 per MWh. Origin's share of electricity and natural gas mass market customer accounts in the National Electricity Market (NEM) region will increase from 20 per cent to 33 per cent. Integral Energy and Country Energy together have more than 1.6 million electricity customer accounts, 33,000 natural gas customer accounts and 9,000 LPG customer accounts. In 2009- 10 Integral Energy and Country Energy customers consumed 27 TWh of electricity and 4.5 petajoules of natural gas, with total revenues of $3.8 billion. The Eraring GenTrader arrangements will be acquired for $950 million or $313/kW and will provide flexible baseload and peaking generation capacity at a significant discount to the ‘new entrant' cost to build, said Origin. Eraring Energy's operations include the Eraring Power Station with 2,800 MW capacity on Lake Macquarie near Newcastle, and the Shoalhaven Scheme in the NSW Southern Highlands which has 240 MW capacity from two pumped storage hydro power stations at Bendeela and Kangaroo Valley. Under the GenTrader arrangements, Origin will supply the fuel, pay the agreed charges, and have the right to dispatch and sell electricity output while Eraring Energy will own, operate and maintain the power stations. Origin's managing director, Grant King, said "On completion of this acquisition, Origin will have substantial incumbent retail positions in every mainland state of the NEM which ensures Origin will be in a strong competitive position across these natural gas and electricity markets." The Eraring GenTrader arrangements will substantially but not completely cover the additional power supplies needed for the new retail customers. Additional electricity will need to be obtained from assets owned by Origin or from third parties. Although Eraring is powered by black coal, Origin has not yet released details of how the GenTrader arrangement will affect its carbon emissions profile. "The increases in sales that arise from this acquisition also create additional opportunities in the medium term to invest in further generation, especially for renewable energy, given the requirement of the existing Mandatory Renewable Energy Target (MRET) legislation," said Mr King. Meanwhile the Federal Government has delayed its Environmental Impact Statement for the Australia Pacific LNG coal seam gas project "for procedural reasons". The time period for the determination has been extended to 22 February 2011, due to the scale and complexity of the project. (ASX: ORG) Sims Metal Management Environmentally, EPA Victoria reports that Sims Aluminium's world-first recycling facility at Laverton has dramatically cut landfill waste. Opened in late October, the recycling machines are expected to cut the amount of hazardous waste going to landfill from aluminium recycling by 95 per cent. The EPA's John Merritt said the two new "dross" presses will benefit the environment by preventing hazardous salt and aluminium oxide waste going to landfill. Traditionally salt is used in the scrap aluminium smelting process to maximise aluminium recovery. At present this waste can't be used and has generally gone to landfill. Doug McLean, the General Manager Australian Manufacturing Division for Sims Group Australia Holdings Ltd, said the dross presses remove the need to use salt in the smelting process. "This means the leftover fines will no longer be contaminated with salt and can be subsequently recycled. This funding has allowed us to become the only known secondary aluminium smelter in the world to operate a ‘salt free' process utilising dross press technology," he said. "We've tailored the equipment to suit our specific needs and as a result can guarantee diversion of 1,800 tonnes of salt, and eventually an additional 12,000 tonnes of aluminium fines, from going to landfill per annum." EPA's HazWaste Fund provided funding of $773,000 to help purchase the machines, which cost $1.97 million. (ASX: SGM) ASX 200 Hastings Diversified Utilities
Fund HDF chief operating officer Colin Atkin said the divestment follows the Fund's strategic path announced earlier this year. "The key findings of the strategic review were that the market value attributed to HDF was less than its intrinsic value, and that HDF would focus on energy infrastructure to capitalise on the long term growth profile of the sector." Mr Atkin said the transaction proceeds are "a significant premium to the most recent average broker valuation of HDF's interest in South East Water". "Receipt of the net sale proceeds will significantly improve HDF's financial flexibility to focus on, and deploy capital into, Epic Energy and its adjacencies in the energy infrastructure sector." The proceeds are likely to be used for accretive investments in Epic Energy and the energy infrastructure sector, debt repayment and active capital management. Return of any surplus capital to security holders would be through a special distribution, security buy back or other more efficient return mechanisms. The sale also simplifies HDF's investment holdings, and likely makes it a more attractive takeover target for 19.9 per cent shareholder APA Group. As part of the transaction, Utilities Trust of Australia is simultaneously selling 11.3 per cent of its 61.3 per cent stake in SEW to CDPQ. (ASX: HDF) Infigen Energy Emerging Companies Viridis Clean Energy However, it will retain ownership of the 7 MW Penrose landfill gas to energy project in California, which has been shut down pending the outcome of a dispute with the project's landfill gas supplier. The sale arrangements are subject to closing conditions which should take between 45-60 days to complete. The net proceeds from the US sale will be applied to pay down the corporate debt facility. The outstanding balance of the facility at 30 November was $14.5 million. Viridis has also received a confidential proposal to recapitalise the remaining Viridis business through the injection of additional equity and debt capital. The proposal is indicative, non- binding and subject to conditions which have not yet been satisfied. These include agreement to certain concessions from Viridis' corporate and project lenders. The proposal has the in principle support of Viridis' corporate lenders. The UK lenders have granted a further waiver extending the date on which Viridis must inject £4.1 million into the UK business to 31 January 2011 to provide time to consider the proposal. The waiver is subject to conditions including that an independent adviser be engaged to provide a report to the UK lenders on the recapitalisation proposal; an agreed timetable and key milestone events be adhered to; any potential sale of the business cannot proceed without the consent of the UK lenders; and discussions on the recapitalisation proposal continue to progress satisfactorily. (ASX: VIR) Micro Cap Companies AnaeCo The report says AnaeCo has a window of opportunity to establish its "market leading technology as the global standard in managing and processing municipal waste". "Now that the company is moving forward, we expect value to be restored in the share price as commercialisation momentum builds," it says. "During 2011, the company will be seeking to do the groundwork for the development of beachhead projects in Asia, Europe and the US." However, "The broader issue for AnaeCo is ensuring financial capacity is available to seriously drive a global commercialisation strategy over the next few years. There is no doubt that the market opportunity is considerable and there is a window through which to establish the DiCOM technology as a global standard. However, internally generated cash flows from WMRC will be insufficient to fund appropriate marketing and business development and opportunities that are emerging in Asia probably won't fit the timelines to contribute to cash flow requirements over the next two years. "It is estimated that the company will need between $10 million and $20 million in additional capital over the next two years to drive the commercialisation strategy. A properly capitalised balance sheet is also required to demonstrate to potential licensees and end-users that the company has the resources to fully support the technology and is capable of resolving issues that may arise in the future. Whilst this funding will be required over a period of time and the company has several funding options available, a program to recapitalise the balance sheet will be required during the next year," says the report. (ASX: ANQ) Carnegie Wave Energy The Sustainable Energy Authority of Ireland (SEAI) has awarded Carnegie a grant of 74,000 for a 174,000 study, commencing immediately, to evaluate the best near shore site for a 5 MW CETO project. A site specific conceptual design study to support the proposed 5 MW project will follow. In September Carnegie signed a collaboration agreement with the SEAI. It will now engage a local Irish consultancy with experience in developing marine renewable and infrastructure projects to assist with the study. To support the development of ocean energy, the Irish Government is providing grants for research, development and deployment and has established a feed-in tariff of 220 per megawatt hour for ocean energy. The Irish Government has a target of 40 per cent electricity consumption from renewable sources by 2020 including an ocean energy target of 500 MW by 2020. In Bermuda, Carnegie and its local partner Triton Renewable Energy Ltd have received approval to deploy a wave monitoring buoy. This will be in 25 metres of water on the eastern side of Bermuda for a minimum 12 months, and will determine the site specific wave energy resource to assist with project design. The wave buoy was shipped from Carnegie's research facility in Fremantle. Carnegie and Triton have a Memorandum of Understanding to develop a commercial CETO wave energy project, and project pre-feasibility and environmental studies have been completed. At Perth, Carnegie's commercial scale Buoyant Actuator (BA) has been transported to the Australian Marine Complex at Henderson, south of Perth, and has commenced its in-ocean testing program. The aim is to verify key aspects of the BA unit including its dry weight, buoyancy and hydrodynamic motion performance. Ballasting and deballasting tests will involve varying the buoyancy of the BA inocean. The results will inform planning of the installation at the Garden Island site. The BA will be fitted with an inertial measurement unit and subjected to a ‘decay' test. This involves destabilising the BA and recording its motion as it returns to a normal position in the water. The data will provide information for computational modeling of the BA's behaviour at sea. (ASX: CWE) Clean Sea Tuna Chairman John Ellice-Flint said Mr Housden over 40 years experience in accounting, finance and management across a range of industries. He is a director of GrainCorp and iSoft Group, a board member at law firm Sparke Helmore, and a member of the Audit & Risk Committee of Housing NSW. Past non executive board roles include: Kaz Group, Sino Gold Mining, China Holidays Travel Group (Holdings) Pty Ltd, and DataDot Technology. In each case he was either chairman of or a member of the Audit Committee. (ASX: CSS) Dart Energy It also has an option to go to 50 per cent before 30 June 2011, and ultimately to 75 per cent before 30 June 2013. The asset was transferred to Dart as part of the demerger from Arrow Energy. FLG operates the Liulin coal bed methane PSC in China, and has a 50 per cent equity stake in the project, with CUCBM holding the remaining 50 per cent. The other shareholder and Dart's partner in FLG is Fortune Oil Plc, a UK listed company with extensive oil and gas operations in China. The Liulin CBM project is one of the most advanced in China, and a designated State Special Pilot Project. To exercise the option, the consideration payable by Dart to FLG is US$8.7 million in two tranches – one of US$4.35 million which was paid on exercise of the option, and the second tranche of US$4.35 million will be paid by the end of March 2011. Dart will also pay into FLG a reserve bonus calculated on the 2P reserve position of FLG at 30 June 2011. All funds paid into FLG by Dart for the exercise of the option will be used to fund the ongoing work program on Liulin during 2011, which is currently being finalised. Dart said exercise of the option and the increase in its equity position in Liulin were made due to the encouraging technical and commercial results over the past 12 months. Simon Potter, Dart chief executive, said that over the coming year he expects to see the first gas sales at Liulin, and for the project to progress rapidly towards additional reserves certification, paving the way for larger scale development in 2012 and 2013. (ASX: DTE) ERM Power Chairman Trevor St Baker said the company began life as a public company with a well- balanced share register of leading domestic and international institutional investors and Australian retail investors. (ASX: EPW) European Gas The term of the notes is to be extended to 31 January 2011. Interest on Tranche A and tranche B rises to 7 per cent for the last month, and Transcor will receive 90,000 shares on the signing of a comprehensive notes restructuring agreement by 31 January 2011. (ASX: EPG) Geothermal Resources This is due to a variety of reasons. A lack of a regulatory framework for carbon pricing, so much so that market support for Australian renewable energy projects has more or less disappeared, and no junior companies have been able to raise capital and significantly advance projects over last twelve months, even those with government grants. He also pointed to a lack of successful projects in Australia despite hundreds millions of dollars in expenditure and many clever people being involved. The industry trend is to move overseas to volcanic geothermal projects in pleasant locations, he said. However, the hot rock geothermal energy opportunity is undiminished in Australia and Geothermal Resources' projects are top class. The first objective is to survive the capital drought without destroying shareholder value through low price capital raisings. (ASX: GHT) Hot Rock Hydrotech International The project follows on from the successful installation of the MPS System at Walthamstow Underground Station. However having subsequently gone into administration, Metronet has over the past four years reorganised its structure. "Nevertheless, during this period Hydrotech has maintained contract with key personnel within the Metronet Group and award of the project at Great Portland Street is, to some extent, a result of these relationships," said chairman, Philip Gray. "Installation work on this potentially milestone or pivotal project will commence in January 2011." In Hong Kong, New World Group subsidiary Hip Hong Construction Company is to enter into an agreement to install the MPS System in a residential project now under construction. The New World Group is one of the largest conglomerates in Hong Kong with a portfolio including several high end residential and commercial developments. The project is a pilot project ‘and if successful, Hydrotech has been advised that the MPS System will be incorporated into the New World Group standard specification for waterproofing of basement structures". A small project has been awarded to one of Hydrotech's business partners in Hong Kong to install the MPS system into the China Light and Power (CLP) Fan Room located at Harbour City, a retail outlet. China Light and Power supply power services to over 80 per cent of Hong Kong's population. The company is hopeful of further MPS contracts soon, said Mr Gray. Meanwhile, its shares have hit a 12 month high of 1.2 cents. (ASX: HTI) Marine Produce Australia Shareholders voted to delist the company at last month's annual general meeting. The reason is to save costs, with the estimated $400,000 saved to be used to grow fish. MediVac "All of the signals coming from MediVac are positive," it says. "The support received from sophisticated investors is encouraging; while the Dutchess facility provides certainty of capital should it be required. The large order of Metamizers looks highly likely to become reality and the SunnyWipes antimicrobial gel is in position to move into the lucrative public health market." (ASX: MDV) Mission NewEnergy The second Jatropha oil shipment comprised 444 barrels (60 tonnes) of unrefined oil and was three times the size of the first oil sale. At approximately US$119 per barrel CIF Europe, the sale price was a 34 per cent premium to prevailing crude oil prices. "Over the next 30 years, the acreage cultivated by Mission's farmers is expected to produce an estimated 20 million barrels of sustainable non food oil supply," said managing director, Nathan Mahalingam. "If sold at the same price, the market value of our Jatropha oil supply is over US$2.4 billion." Mission expects to make further sales of crude Jatropha oil or Jatropha-based biodiesel after the 2010-11 harvest season. Under the arrangement with Joil (S) Pte Ltd, a joint venture company of Temasek Life Sciences Laboratory (TLL), Joil will provide elite Jatropha plant seedlings and plant materials for Mission's next planting seasons in India commencing from 2011. Joil's breeding priorities are higher productivity, synchronized maturation for ease of harvest and desirable self branching patterns. Its trial results are said to have demonstrated a material increase in yield per acre and significant shortening of gestation time. Joil and Mission will jointly explore new Jatropha plantation projects in Malaysia and Indonesia where Joil will provide its elite Jatropha planting materials and funding for the proposed plantations. "The cultivation of higher yielding varieties through genetic improvements is an important step in the continued evolution of Jatropha as a commercially attractive source of biofuels", said Mr Mahalingam. The companies will also evaluate any potential M&A and investment opportunities of mutual interest and explore in-licensing of any varieties developed by Mission's research and development program or mass production of Mission's higher-yielding varieties using Joil's proprietary tissue culture technology, said to be a world first for Jatropha. Joil's major shareholders, TLL, TATA Chemicals and Toyota Tsusho, have made significant investments to commercialize the R&D of TLL on Jatropha curcas. (ASX: MBT) Nanosonics Chief executive, David Radford, said the company continues to receive "significant interest" in the distribution of the new environmentally friendly sterilization machines in countries where it has no distributor. (ASX: NAN) Pacific Energy Petratherm The placement was managed by Patersons Securities and was supported by substantial shareholder Minotaur Resources Investments Pty Ltd. (ASX: PTR) Phoslock Water Solutions RedFlow RedFlow is to supply 10 of its zinc-bromide battery and solar panel remote power systems to Energy Safe Victoria. The contract is worth $1 million. "These units are designed to demonstrate how selected parts of the overhead electricity network can be turned off on high risk fire days in the Victorian summer," said chief executive, Phil Hutchings. "The RedFlow systems will allow electricity supply to be maintained to households when that occurs and do so in an efficient and environmentally friendly way." (ASX: RFX) International Companies Carbonscape Activated carbon is a form of charcoal with a huge surface area, typically more than 500 square metres per gram, it said. The large surface area gives it a wide range of uses including cleaning contaminated soil and water, and capturing significant amounts of carbon dioxide emissions from power stations. Activated carbon is used around the world in metallurgy, chemistry, agriculture, timber processing, gold extraction, nuclear energy, pharmaceuticals, petrochemicals, medicine and food processing. Traditionally, its production involves many stages of processing and uses some exotic materials to open up the tiny pores between carbon atoms. Carbonscape says that its patented continuous-flow microwave technology has produced high-grade and valuable activated carbon in a single processing step using waste pine sawdust. The company recently began batch scale production at its South Island pilot site. Independent tests show Carbonscape can produce surface areas of 800 square metres per gram from pine sawdust. Carbonscape director and chief executive, Tim Langley, said "We have replaced a slow and complex process using exotic materials with a fast, single process using pine sawdust and created a 60 per cent improvement in quality. We have applied for patents. The potential world market for this technology is vast. Each year demand is rising by about 5 per cent." A benefit of Carbonscape's solution is that it can use wood and other waste that would otherwise be expensive to dispose of. Activated Carbon has the potential to reduce the emissions from large, single sources of carbon dioxide, such as power stations, he said. By placing activated carbon in flue gases, it can absorb carbon dioxide before it is released into the atmosphere. Unlisted Funds Australia New Zealand Forest
Fund The Fund's investors include international and regional institutional investors who believe Australia and New Zealand timberland is an attractive component of their alternative asset portfolio allocation. "Now is the right time for investors to be weighting toward the timberland asset class because of its low volatility and positive correlation to inflation," said David Brand, managing director of New Forests. "Australia and New Zealand's timberland sectors are restructuring as a result of the failure of several forestry Managed Investment Scheme businesses in Australia and the flow on effects of the global financial crisis. This has created a once-in-a-generation change of ownership of the forestry and land asset base - which may be worth $3-4 billion - but the strong underlying market fundamentals of the sector remain, driven by growth in Asia." New Forests' ANZFF will provide exposure to domestic and export market opportunities in the region, including structural timber markets, pulp and paper and high value feature grade timbers. Investment returns may come from timber, land leasing, capital appreciation, bio-energy products, limited processing facilities and environmental credit production, such as carbon credits. All assets will be managed on an environmentally and socially sustainable basis to deliver or enhance returns and/or to reduce risk, it said. Global timberland investment has grown significantly over the past 20 years with current estimates of institutional investment at up to US$50 billion. "It has been a particularly attractive asset class for institutional investors and investors willing to accept lower liquidity in return for a premium equity return and portfolio diversification benefits. While the majority of timberland investments are currently in US assets, ANZFF supports the growing trend toward international diversification and provides access to new growth opportunities borne from the current market conditions in Australia and New Zealand, and the proximity to expanding demand in Asia." ANZFF is New Forests' first branded timber fund in the Australia-New Zealand region. The company says it has attracted marquee institutional investors from Europe, North America and Australia. New Forests currently co-manages an eco products fund, focused on carbon and biodiversity investments primarily in the US, and executes investment strategies related to sustainable forestry in the Asia Pacific region. New Forests provides investment services from fund management to operational oversight of forest management and accreditation of forest assets and eco products. In July, it gained an expanded Australian Financial Services Licence, enhancing its ability to provide financial advice and products. New Forests also recently became a signatory to the UN's Principles for Responsible Investment and aims to report on its progress toward implementing the Principles in 2011. New Forests is headquartered in Sydney, with staff in New Zealand, Washington D.C., San Francisco, Indonesia and Kota Kinabalu, Malaysia. Eco Investor Update
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