Eco Investor Update

A Weekly News Update for Environmental Investors

29 October 2012 - No 104

____ Core Securities ____

ASX 100

APA Group
APA Group’s takeover of Hastings Diversified Utilities Fund (HDF) has been successful with APA now owning 82.65 per cent of HDF. The takeover offer period has again been extended as APA would like to reach 90 per cent and delist HDF.

The acquisition has seen HDF chief executive, Colin Atkin, relinquish that role and he will leave at the end of the year.

As foreshadowed as part of the takeover, financiers have commenced a review of the continuation of their debt facilities to HDF subsidiary, Epic Energy. The financiers are yet to give any waivers to APA and so HDF may be obliged to repay some of the debt facilities. APA says it has sufficient funds to fully repay all of HDF’s debt.

So far APA has issued 4,007,519 new securities as part of the takeover.

APA Group has also revised its earnings (EBITDA) guidance for 2012-13 to $660 million to $670 million, up from $540 million to $550 million. This is to account for the 20.7 per cent of HDF that APA owned at the time of the offer,

Chairman Len Bleasel said “The revised guidance does not take into consideration any earnings that will be generated by HDF once HDF operating results are consolidated by APA. APA will update its guidance on EBITDA and interest expense when APA has had access to HDF financial information sufficient to allow APA to accurately assess the specific impacts in respect of each.”

APA has extra funding facilities to repay HDF’s debt if needed.

APA Group said that since listing it has delivered total returns to its securityholders of 595 per cent, equivalent to a compound annual growth rate of 17.5 per cent.

Chairman Len Bleasel said APA remains well positioned to grow sustainably and responsibly. “Over the 2013 financial year we will integrate the HDF business and progress the expansion and development projects we currently have underway.”

Managing director, Mick McCormack, has commented on the coal seam gas sector, saying the development of the coal seam gas industry will not change the way APA goes about its business of transporting gas.

“We don’t explore and produce gas,” he said. “We want to maximize the quantity of gas transported through our assets, so are indifferent as to where our customers want us to transport gas from and to. Indeed, for our regulated assets, we are obligated to transport gas from any source through an existing pipeline with available capacity should our customers ask us to do so.

“That said, we do wish to see the orderly development of the coal seam gas industry which will benefit the Australian economy generally and ensure an abundant supply of gas to meet the growing domestic market, and therefore benefit APA specifically.

“Against this background, total gas reserves are likely to increase substantially. Shale gas exploration in Australia is fairly recent, but shale gas could potentially double Australia’s gas reserves. I note that the first commercial production of shale gas in the Cooper Basin was announced last week.

“Looking to the future, we expect gas prices to fluctuate in the near term as the market accommodates the competing influences of strong global demand for gas, with some lag before significant investment in new sources of production are commissioned. With gas reserves plentiful in many regions and investment levels high, together with increased competition between producers in both the domestic and international gas markets, we expect that prices will stabilize over time.” (ASX: APA)

ASX 200

GWA Group
GWA Group chairman Geoffrey McGrath has reaffirmed the company’s environmental commitment, telling shareholders “The Board is committed to the Company's environmental and social responsibilities through continually reducing energy, carbon emissions, water and waste across the Group's operations.

“GWA reports greenhouse gas emissions under the National Greenhouse and Energy Reporting Scheme and these reports are available on our website to allow for transparency in our improvement initiatives.

“We are proud of the contribution our innovative products make to improvements in water and energy efficiency and we continue to invest over 1.4 per cent of revenue per annum in product innovation to enhance our competitive advantage,” he said.

On the outlook, he said it is very difficult to predict when an improvement in building activity will occur but the company does not believe any improvement will benefit GWA this financial year, so it is focusing on reducing cost.

On GWA’s low share price, he said “GWA's share price is now sitting at levels reminiscent of the Global Financial Crisis in 2008/09, however since that time we have successfully restructured GWA into a focused Australian building fixtures and fittings company.

“The Board understands shareholders are concerned about the fall in the Company's share price but in our view it is a product of negative share market sentiment and the weak outlook for the building sector.

“The Board believes that, with focus on maximizing efficiencies across the value chain, coupled with the work completed in clarifying our market positions, GWA will be well positioned to take advantage of improved market activity when it occurs.”

Following GWA’s recent “disappointing” trading update, broker Ord Minnett has moved to an Accumulate recommendation “despite cutting our price target to $1.77 per share”. While acknowledging that picking the turning point in the housing cycle is treacherous and that GWA benefits late in the building cycle, “we believe FY13 represents trough cycle earnings.”

“We believe GWA is well positioned for an eventual housing recovery. Combined with management’s focus on cash flow and dividends, we see enough to warrant a more positive stance,” it said. (ASX: GWA)

Hastings Diversified Utilities Fund
See APA Group. (ASX: HDF)

Emerging Companies

Energy Action
Energy Action chairman Ronald Watts has directly and indirectly sold another 300,000 shares at $2.30 each. A week earlier he sold 200,000 shares at $2.20 each. (ASX: EAX)

Gerard Lighting
Gerard Lighting was removed from the ASX on 25 October following the successful takeover by CHAMP Private Equity. (ASX: GLG)

Reece Australia
Plumbing retailer Reece Australia said that due to the challenging trading environment, sales for the first quarter were down 3 per cent on the prior year, and profit before tax for the half year to 31 December is expected to be down around 4 to 6 per cent.

Reece said it is very well placed to continue to manage the downturn in the building and construction industries and consumer restraint through its network of over 450 branches and strong cash position and balance sheet.

The company opened seven new branches in the first quarter. (ASX: REH)

Interest Rate Securities

APA Group Subordinated Notes
APA Group’s $100 subordinated notes have continued to perform well since listing and have reached $103.75. (ASX: AQHHA)

Unlisted Property Funds

Aspen Parks Property Fund
Nature tourism operator, Aspen Parks Property Fund had a record gross equity inflow of $44.8 million for 2011-12, up 82 per cent on 2010-11. Net inflows after withdrawals were $34.8 million.

Frank Zipfinger, the managing director of the Fund’s manager, Aspen Group, said “The core strengths of the business have been identified as being the investment property portfolio and Aspen Parks Property Fund. We have also clearly identified Aspen’s noncore businesses, which are the residential and commercial development divisions, which the Group plans to exit.”

“Aspen Parks remains the Group’s flagship fund,” he said.

Operationally, Aspen Parks continues to perform well. Mining accommodation contributed most strongly to profitability, and its tourism assets performed in line with expectations.

“Gearing in the Fund was reduced to 31 per cent at June 2012 (44 per cent at June 2011). This positions the Fund for new acquisitions and/or investment into the existing portfolio. The Fund has current capacity of circa $50 million through a combination of debt and cash reserves,” he said.

Aspen Parks is investing in its property portfolio to maintain its high standards and continues to be a market leader in the accommodation and tourism industry. Over 2012-13 it is installing higher value accommodation and improving rates across a number of properties.

On environmental sustainability, Aspen said it has a proactive approach and is committed to sustainable operations and development activities. Aspen Parks has operations in environmentally sensitive areas including the Shark Bay World Heritage Area, Ningaloo Reef Marine Park, Woodman Point Regional Park, Ben Boyd National Park and the Murray River.

“Aspen’s executive management team takes direct accountability for sustainability issues and plays an active role in their management,” it said.

Major initiatives in 2012-12 were a new wastewater treatment plant at the Monkey Mia resort adjacent to the Shark Bay World Heritage Area. Construction has commenced and commissioning is expected by March 2013.

The system will produce very high quality effluent with the potential for return and reuse around the resort for irrigation and toilet flushing.

“The investment in this wastewater technology results in a new benchmark in sustainability for Aspen,” said the manager.

____ Satellite Securities____

ASX 200

Transpacific Industries Group
Shares in Transpacific Industries Group reached a 16 month high of 95 cents on 25 October. No news accompanied the rise. But in the nine trading days leading up to the high, volume was relatively high. (ASX: TPI)

ASX 300

Infigen Energy
Infigen Energy has welcomed the draft recommendations of the Climate Change Authority’s (CCA) review of Australia’s Renewable Energy Target (RET), saying that if implemented the draft recommendations will redress the regulatory uncertainty and unpredictability that has hamstrung the renewable energy industry for the last few years.

The key draft recommendations are: no change to the large scale renewable energy target before 2020; no change to the annual targets between now and 2020; no change to the shortfall price with scope for upward revision if required to meet the target; and reviews to take place every four years instead of every two years.

Infigen Energy’s managing director Miles George said “Despite the significant lobbying efforts of those with vested interests in seeing the RET amended, reduced or scrapped, the Climate Change Authority has done a professional job in delivering draft recommendations congruent with the intent of the original legislation and the national interest.

“The review was always about assessing the efficacy of the RET in achieving its stated objectives. The CCA’s draft recommendations acknowledge that by and large these objectives are being met,” he said.

The CCA identified that an adjustment to the target to reflect the current electricity demand forecast would deliver less than 4 per cent in savings. It assessed this was insufficient to offset the higher cost of capital that would be demanded by investors if further regulatory uncertainty was introduced.

“We look forward to the final report confirming the CCA’s draft recommendations and the Government endorsing the recommendations,” said Mr George. (ASX: IFN)

Emerging Companies

Clean TeQ Holdings
Clean TeQ Holdings and Nippon Gas Co Ltd have signed a joint venture agreement for the licensing and marketing of Clean TeQ’s technologies in the Japanese air, water and resource recovery markets.

Clean TeQ has licensed its technologies with Clean World Japan Co Ltd, a company 85 per cent owned by Nippon Gas and 15 per cent by Clean TeQ.

Clean TeQ will receive from Clean World Japan a one-off licence fee of $3.5 million, payable on the execution of the first technology agreement between Clean World Japan and a Japanese entity; a royalty fee of 6 per cent of Clean World Japan’s revenue; and fees for providing technical evaluation and design services.

Clean TeQ said it is in advanced discussions with Clean World Japan’s first prospective client for the technologies, who is seeking to use Clean TeQ’s continuous ion exchange technology to recover valuable metals from waste streams.

Test work has been going for some months and results so far are positive. The target date for signing an agreement is the first quarter of 2013. This would trigger the payment of the $3.5 million licence fee.

Clean TeQ chief executive, Peter Voigt, said the Japanese market offers opportunities for Clean TeQ in all areas of its business.

Clean TeQ has two earlier arrangements with Nippon Gas: a joint venture for the treatment of coal seam gas water in Australia, and a 10 per cent equity placement in Clean TeQ to Nippon Gas worth $2 million at 14.6 cents per share. (ASX: CLQ)

Greencap managing director Earl Eddngs acquired 100,000 shares at 7.1 cents each. (ASX: GCG)

Solar energy installer Solco has appointed Craig Vivian as a director. Mr Vivian is a chartered accountant with 25 years’ experience in accounting and banking.

He is currently an executive director of Nimble Asset Management, a Canadian based company building a portfolio of US single family homes. Prior to Nimble, he held a partnership role at Ord Nexia, a medium sized accounting practice and then established his own accounting practice in 2009, advising clients on business acquisitions, tax planning and cash flow analysis.

Solco chairman David Richardson said Solco will benefit from Mr Vivian’s significant experience with company financial management and as Solco identifies acquisition opportunities in the renewables sector. (ASX: SOO)

____ Pre Profit Securities ____

Micro Cap Companies

Australian Renewable Fuels
Biodiesel company Australian Renewable Fuels (ARF) had September quarter receipts from customers of $15.7 million. However, its net operating cash flow was minus $0.65 million.

ARF’s net cash overdraft was minus $4.6 million, up from minus $3.8 million in the June quarter. ARF said the negative cash movement was due to building inventories for an export shipment expected to happen by the first week of November.

“The sale and receipt of the cash will be recorded at that time and it is expected that the receipt of cash from that transaction will more than offset the cash usage for the September 2012 Quarter,” it said.

The company also said the unaudited management accounts for the quarter recorded a small net loss of $23,000 after depreciation and amortization of $831,000, and positive earnings (EBITDA) of $1.3 million.

This is a substantial improvement from the same quarter last year, which recorded a net loss of $2.24 million and EBITDA loss of $2 million, said the company. (ASX: ARW)

Cardia Bioplastics
Shares in biodegradable plastics maker, Cardia Bioplastics, touched an all time low of 0.2 cents on 26 October.

A day earlier Cardia Bioplastics released its September quarter report saying sales revenue was $803,000, an 11 per cent fall on the June quarter’s $911,000. Revenue in the September 2011 quarter was $1 million.

The revenue came from the US, Europe and Australia, and from sales of kitchen waste bags in China supplied under trial contracts with four city districts of Shanghai.

Net operating cash outflow was $208,000 compared to $511,000 in the June quarter.

CNN has cash of $1.1 million and its annual cash burn is circa $3 million. The company said it has received interest from several parties to participate in a capital raising for working capital. The company expects it will need to raise additional cash in the December quarter.

During the quarter, Cardia Bioplastics increased its intellectual property portfolio to 10 patent families. This includes 100 submitted and/or registered patents for bioplastics formulations, processes and applications for packaging products. (ASX: CNN)

Allan Gray Australia has increased its stake in Nanosonics from 7.69 to 8.83 per cent. (ASX: NAN)

Pacific Environment
John Lemon has resigned as a director and company secretary of Pacific Environment and been replaced as company secretary by Adam Gallagher. Mr Gallagher joined the board in September. (ASX: PEH)

Phoslock Water Solutions
Phoslock Water Solutions chairman Laurence Freedman has acquired more shares on market - picking up 200,000 at 4.5 cents each and 105,301 at 4.4 cents each. (ASX: PHK)

Po Valley Energy
Hunter Hall has reduced its interest in Po Valley Energy from 18.39 to 17.29 per cent.

Po Valley deputy chairman Michael Masterman acquired 1 million shares 15.5 cents each and sold 300,000 shares at 15 cents each. (ASX: PVE)

____ Pre Revenue Securities ____

ASX 100

Lynas Corporation
Mitsubishi-UFJ Financial Group is no longer a substantial shareholder in Lynas Corporation. (ASX: LYC)

ASX 300

Lithium explorer Orocobre has announced its maiden resource at the Cauchari Lithium Potash Project in Argentina. The inferred resource is estimated to contain 470,000 tonnes of lithium carbonate equivalent and 1.6 million tonnes of potash.

The estimate is based on five holes in Orocobre’s eastern Cauchari properties to an average depth of 170 metres in the northern resource area and 50 metres in the southern area.

An adjacent property owner, Lithium Americas Corp, drilled to 450 metres depth and so future drilling by Orocobre may increase its maiden resource.

The company said an exploration target of between 0.2 million and 2.6 million tonnes of lithium carbonate equivalent and 0.5 million and 9.2 million tonnes of potash has been estimated beneath the maiden resource based on a range of porosity and grade possibilities to between 220 and 350 metres in depth.

The resource is of a lower grade than at Olaroz, but the brine chemistry is similar and with an attractive low Mg/Li ratio (2.8) and high K/Li ratio (10). Initial evaluation of the process route suggests the brine could be processed in an expanded Olaroz plant.

Cauchari is 20 kilometres south of Orocobre’s proposed Olaroz processing plant. (ASX: ORE)

Micro Cap Companies

Shares in Algae.Tec fell to a new one year low of 27 cents on 26 October. (ASX: AEB)

Organic waste to biogas developer AnaeCo expects to receive a $4.9 million refund under an application for the R&D Tax Incentive for 2011-12. AnaeCo expects to receive the cash in early 2013. $4.9 million would be very handy for pre-revenue AnaeCo.

Managing director and chief executive, Patrick Kedemos, said “Technology development is a long and sometimes arduous journey, and one of the main challenges is to fund the development budget before revenue from commercialized operations kicks in.

“This R&D tax funding will be very useful as we undertake full operational scale commissioning of the DiCOM System on the Western Metropolitan Regional Council (WMRC) project.”

AnaeCo’s DiCOM system is a disruptive technology and its demonstration at the WMRC project in Perth is a world first for hybrid aerobic anaerobic biological processing of municipal solid waste. The Perth plant is due for commissioning soon.

Successful commissioning will be a game changer for AnaeCo’s commercialization strategy, said Mr Kedemos.

The company has filed nine new international patent applications in the last six months on top of the two core granted patent families. (ASX: ANQ)

Shares in BluGlass reached a new 18 month high of 18 cents on 25 October. On the same day the company announced a world first achievement in reducing impurities in its gallium nitride (GaN) films to industry standard levels. The new impurity levels have been independently verified.

BluGlass is a high tech company commercializing a low temperature RPCVD technology for manufacturing gallium nitride films for LED lighting.

The RPCVD grown GaN layers demonstrate reduced levels of the key impurities carbon, hydrogen and oxygen and these are on par with the industry standard process, Metal Organic Chemical Vapor Deposition (MOCVD) technology.

Chief executive, Giles Bourne, said “This achievement is a breakthrough for the company and is a critical step in proving to the industry and future customers the potential of our technology. Carbon and oxygen are well known inhibitors of RPCVD, and their reduction will be viewed by the industry as a significant achievement. These reductions in impurities will greatly assist BluGlass in achieving its technical and commercial milestones.”

BluGlass will now aim to optimize the p GaN layer to show the advantages of RPCVD to customers, including improved LED device efficiency over the current industry standard MOCVD produced devices. (ASX: BLG)

Carnegie Wave Energy
Carnegie Wave Energy has issued 5 million shares at 3.5 cents each to The Australian Special Opportunity Fund LP. Carnegie will use the $175,000 raised for its Perth Wave Energy Project, while the Australian Special Opportunity Fund LP, as with previous such share issues, is free to sell the shares on market.

Carnegie now has 1,071,367,591 shares on issue. (ASX: CWE)

Dyesol’s shares are in a trading halt pending an announcement about collaboration with Tata after media releases in the UK. (ASX: DYE)

Earth Heat Resources
Geothermal developer Earth Heat Resources has appointed MidOil USA as corporate advisor to assist with its growth plans.

Managing director, Torey Marshall, said “For a considerable period of time the company has been able to exist without a corporate advisor, relying on internal expertise to capture some magnificent project financing that has fallen on deaf ears in the broader markets.”

He said that MidOil USA has a formidable track record and global contacts. “I feel this relationship gives us the extra horsepower that’s needed to compete for investor funds on a global basis in a tough sector.”

Earth Heat Resources is working to build Argentina's first geothermal power station. (ASX: EHR)

Shares in Enerji remain in a trading halt as the Company finalizes a placement of securities with brokers, which is expected to be completed within two business days. The funds are for the ongoing operations of the business. (ASX: ERJ)

Geodynamics said its Habanero 4 geothermal well flowed steam as part of the well’s clean up program in preparation for flow testing and stimulation that are scheduled to commence in mid November.

The program will also commission the closed flow loop system by pairing the original Habanero 1 exploration well as the injection well for Habanero 4. This will culminate in a demonstration trial of the 1 MWe Habanero Pilot Plant around April 2013.

Geodynamics’ chief executive officer, Geoff Ward, said “The successful clean up flow of Habanero 4 is an important step. We are very pleased with the quality of the well achieved at Habanero 4 and are encouraged by these early results in the lead up to our test program. We look forward to the results of the flow testing in November and remain focused on successfully commissioning the 1 MWe Pilot Plant early next year.” (ASX: GDY)

K2 Energy
K2 Energy and Mears Technologies Inc. have agreed on their merger terms, with K2 to issue Mears’ shareholders with 800 million K2 shares for all of their common stock, warrants and options.

Mears’ shareholders are expected to hold about 77 per cent and K2 shareholders 23 per cent of the merged entity. The new company will retain the ASX listing of K2 but under a new name expected to be Mears Technologies Ltd. A dual listing on NASDAQ may follow in time.

The new entity will own 100 per cent of both the solar technology and the Mears CMOS technology.

K2 will seek shareholder approval for the transaction, and other conditions need to be satisfied. These include a capital raising of at least $7.5 million by K2. The capital raising will be led by Foster Stockbroking and will be used to develop the business.

Mears has a significant shareholder base in Australia and K2 is a major shareholder of Mears Technologies Inc.

Mears has over 100 patents and says its MEARS Silicon Technology (MST) has applications across most segments of the US$300 billion semiconductor industry including solar energy.

Projected benefits include improved performance, reduced power consumption, reduced transistor variability, improved manufacturing yields and the opportunity to delay major capex commitments.

Following the merger, K2’s total assets will rise from $4.7 million to $12 million. (ASX: KTE)

Kimberley Rare Earths
Shares in Kimberley Rare Earths fell to a new post IPO low of 5.8 cents on 19 October.

Director Ian Macpherson will retire at the company’s annual general meeting and will standing for re-election. Mr. Macpherson joined the board in December 2010 as a non-executive chairman and more recently was a non-executive director. (ASX: KRE)

KUTh Energy
KUTh Energy’s six directors have had shares issued in lieu of director’s fees. A total of 4,009,283 shares were issued at 2.8 cents per share. (ASX: KEN)

Petratherm said it could receive up to $7.2 million in cash rebates for eligible expenditure under the Federal Government’s R&D Tax Incentive scheme. If all goes well, the potential net cost to Petratherm to achieve commercial demonstration of commercial flows at its Paralana geothermal project in SA could be around $3 million.

This is based on the next stage of works budgeted to cost around $26 million.

To cover this Petratherm has lodged a $13 million grant application to ARENA for half the cost. With Petratherm’s joint venture partner at Paralana, Beach Energy, having a 21 per cent equity share, Petratherm’s project equity share is 79 per cent.

If the ARENA grant is successful Petratherm would need to fund around $10 million. If Petratherm received up to $7.2 million in cash rebates under the R&D Tax Incentive scheme, it would need to fund only $3 million.

Works for the next stage at Paralana include drilling, fracture stimulation and demonstration of commercial flows. These are the immediate precursor works to building a 3.5 MW pilot plant. (ASX: PTR)

Strategic Elements
Two directors of Strategic Elements have acquired shares on market.

Charles Murphy indirectly acquired 125,000 shares at 3.8 cents each and Matthew Howard indirectly acquired 100,000 shares at 3.88 cents each. (ASX: SOR)

Water Resources Group
Water Resources Group said its US Research and Development division, Campbell Applied Physics Inc. (CAP), has signed an agreement with Office Chérifien des Phosphates (OCP) about a rare earth elements program.

CAP has been working with OCP to develop sea water desalination and rare earth extraction projects using its technologies.

However, Water Resource Group said that “Due to confidentiality provisions, further information cannot be made available at this time.”

OCP is the world's largest exporter of phosphates and derivatives and a significant contributor to Morocco’s GDP.

WRG’s CEO, Brian Harcourt said “This is an exciting opportunity and we look forward to further developments within this region.” (ASX: WRG)

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