Eco Investor Update
A Weekly News Update for Environmental Investors
2012 - No 106
Hastings Diversified Utilities
HDF has called meeting of securityholders on 13 December to retire Hastings Funds Management as its Responsible Entity and approve an APA Group nominee as Responsible Entity to facilitate a smooth transition to APA control. (ASX: HDF)
Tox Free Solutions
The only news was the issue of 200,000 shares at $1.20 to Moss Capital Pty Ltd as part consideration for services during Energy Actions IPO. (ASX: EAX)
Although the presentations at the AGM were generally positive, the chairman Gene Tilbrook said the company will continue to focus on lowering debt rather than resuming dividends; and chief executive officer Kevin Campbell said trading conditions are weaker and earnings (EBITDA) were 6 per cent lower for the first quarter compared to the same period last year. (ASX: TPI)
Hunter Hall continues to reduce its interest, now from 9.03 to 7.84 per cent. (ASX: CBD)
Clean TeQ Holdings
Completion and commissioning is expected by the end of June 2013, and the Service and Maintenance part of the deal has annual options to be extended. The five facilities will utilize Clean TeQs OdourTeQ biological air treatment technologies.
Clean TeQ delivered Queensland Urban Utilities four odour control facilities in Brisbane two years ago.
Chief executive Peter Voigt said This contract, along with others already secured and in the pipeline, will underpin our Air Divisions budget in 2012-13. This project confirms our decision to establish a permanent presence in Brisbane when we opened our Queensland office at the Brisbane Technology Park some 12 months ago to service a growing market need for quality Air Abatement technologies. (ASX: CLQ)
The company will reduce costs wherever possible and concentrate on key operations in Australasia.
CMA is rightsizing its operations, including reducing staff numbers in certain states to lower operating costs, however, the company will continue to have a significant presence across Australia, said managing director, John Pedersen.
No metal recycler anywhere in the world is immune from the market forces now at work and we are determined to keep a close eye on costs and other aspects of the business which we can control, he said.
In some key regions there are already signs that these measures to strengthen our business are leading to measurable operational improvements, said Mr Pedersen. (ASX: CMV)
Unlisted International Share Funds
Australian Ethical International
The increasing US energy independence, the high cost of Australian energy production, and the ASX 200's 28 per cent exposure to the energy and materials sector pose portfolio risks for Australian investors.
Issues at play include the combined impact of increased production from Canada, steady offshore production from the Gulf of Mexico and booming onshore shale oil and gas production. These are poised to give the US increased energy independence in the coming decade and rewrite the politics of oil as the geopolitical importance of Middle East oil to North America is reduced.
Australian investors will face increasing export competition for local natural gas sales as up to 10 LNG export facilities in North America are seeking approval to export shale sourced natural gas into Asia and Europe.
The two fund managers say that While the global thirst for energy will persist, Australia's role in these challenging energy markets is becoming increasingly marginalized as our ability to compete is hindered by persistently high development costs, ever expanding resource royalty payments and political uncertainty.
These international and local developments could benefit clean energy investors.
The International Equities Trust is themed around global smart energy and investments focusing on the supply and demand of clean energy. We believe this all round exposure to the critical themes of climate change and energy security presents a compelling potential for long term growth and outperformance, they said.
Unlisted Investment Companies
August Investments' managing director, Damien Lynch, said that at first sight Toxs statistics are not spectacular dividend yield of just 1.4 per cent, an earnings yield of 5 per cent with a PE of 20, but the cashflow yield is 9.2 per cent.
However, growth over the last two years has been spectacular with earnings per share (EPS) up 29 per cent per annum and cashflow per share up 15 per cent per annum on revenue increase of 32 per cent per annum.
Analysts expect the profits underlying these ratios to continue to grow over the next two years. For example EPS is projected to grow by 22 per cent per annum over this period. These projections are based on expected organic growth and Toxs takeover of DoloMatrix in April this year.
Mr Lynch said this assessment is at odds with his article about Tox published in Eco Investor this June.
He explained, We saw problems with Toxs increasing cost of sales ratios and occupancy costs relative to sales ratios over several years.
However, in the 2011-12 financial accounts the decline in these ratios was reversed. Cost of sales reduced from 65 per cent to 62 per cent and occupancy costs have moderated from 45 per cent of sales to 40 per cent. These improvements are partly due to just three months integration of the DoloMatrix business. This takeover provides Tox with higher revenue and economies of scale, which accounts for the bullish projections of future full year earnings.
Mr Lynch sees Tox Free Solutions as a growing, highly specialized business in a sector which is being mandated by community concern and government legislation. There are strong barriers to new entrants based on the highly technical and costly nature of toxic waste recycling and disposal. For green investors such as August Investments, the environmental benefits are a bonus.
Toxs share price has been trending up since mid year and reached a 10 year high of $2.96 on 2 November.
Micro Cap Companies
Managing director Andrew Howard responded with a long letter covering each concern. He said the company has taken steps to get an unqualified audit report for the current and future financial periods, and is currently obtaining a valuation of plant and equipment acquired from Reclaim Industries.
He also said the companys level of borrowings is conservative: the ratio and debt to capital ratio are both under 25 per cent, implying that most of the company's assets are financed through equity and the company is not highly geared compared to its peers.
Mr Howard said he believes there is not significant uncertainty regarding continuation as a going concern. Since 30 June the company has provided its auditors with additional information that should remove any uncertainty the auditors hold in respect of the companys financial position and bring the auditors view in line with the view held by the board of the company.
The company has a surplus of current assets over current liabilities. This combined with the increase in sales can adequately meet the financial commitments of the company and will relieve the auditor of any uncertainty they may have and remove the need for an adverse audit report.
The companys ability to remain as a going concern has been addressed from the response to the ASX in March 2012 through a rights issue raising $2.9 million. The current position of the company with the growth in sales and level of receivables makes the directors believe that this will remove any inherent uncertainty regarding the companys ability to continue as a going concern.
The company is also negotiating a debt facility for future expansion.
Mr Howard said sales and production for the current financial period are higher than for the previous reported period. If needed, the company will raise additional capital to fund operations, and directors and major shareholders have offered further funding if required.
Both contracts for the sale of land at Smithfield and Fairfield have been rescinded. The company that owns the Smithfield property is held by three major shareholders of Carbon Polymers. A Carbon Polymers subsidiary is a tenant of the Smithfield property and has relocated the plant and equipment at the Fairfield property to Smithfield. (ASX: CBP
But, unlike our investment in Synerject, we want to directly control the businesses we develop so that we have full access to profits and cash, he said.
Orbital requires growth and profitability and for a number of years we have looked for System Sales growth opportunities. This commenced with the purchase of Orbital Autogas Systems, followed by the development of the next generation Liquid LPG system for Ford and the aftermarket, the acquisition of Sprint Gas and most recently winning a supply contract for heavy fuel engines for unmanned aircraft systems.
Mr Day said Orbital is making progress on this new strategic path but challenges have delivered financial and other outcomes that were not anticipate and have disappointed shareholders and the board.
The future lies with new technologies and the operationalization of those into real revenues and profits; that takes time.
Orbital made a net loss of $3.1 million for 2011-12, but there are some positives the company can take out of what was a very tough year. Revenue rose 35 per cent to $22.1 million.
System Sales increased by 140 per cent to $14 million, and included Orbital Autogas Systems liquid LPi system for Fords EcoLPi Falcon and LPG kits to the aftermarket through Sprint Gas Australia (SGA). Orbital now has over 100 liquid LPG kits for the aftermarket.
Despite the challenging market with national LPG volumes falling due to low petrol prices and reduced Government support, OAS and SGA managed their costs and increased market share.
42 per cent owned Synerject, which is not consolidated in Orbitals revenue, grew revenue by 5 per cent to US$127.5 million and profit after tax by 10 per cent to US$8.0 million.
On the outlook, Mr Day said At the end of the 1st quarter I can report that the results (unaudited) are significantly better than the previous two quarters and Orbital has generated positive cash flow since 30 June 2012.
In August System Sales began supplying UAS engines and that business is going well and is profitable and we are seeking to secure further orders including engine refurbishment and spare parts to boost revenue this financial year.
Ford sales are similar to last year but the LPG aftermarket is very soft, affecting Sprint Gas which relies entirely on the aftermarket. OAS and Sprint Gas businesses are both keeping their heads above water. (ASX: OEC)
Style has agreed to a recapitalization proposal with Otsana Pty Ltd, which trades as Otsana Capital, and that involves a one for 100 share consolidation.
Style would also issue:
$500,000 of the funds raised would pay out an existing debt to Strandtec Pty Ltd. The balance would be used to develop the existing business, look at new business opportunities, and for working capital.
The company is in a deed of company arrangement (DOCA) which will result in the extinguishment of all pre-administration creditors. The DOCA should be effectuated in January 2013 and the plan is to complete the recapitalization around the same time.
The proposal needs shareholder approval, a minimum of $1.75 million being raised by Otsana through the above equity raisings, and the DOCA put into effect.
The shareholder meeting is planned for December. (ASX: SYP)
Vmoto will produce three of E Tropolis electric scooter models on an OEM basis. A minimum of 15,000 units over three years represents a total sales value of $24 million. Vmoto will produce the electric scooters at its Nanjing manufacturing facility commencing early 2013.
Other benefits could flow to Vmoto such as growth in the European market and synergies between the two companies, especially in R&D and technology.
E Tropolis markets, distributes and sells electric scooters, electric bicycles and solar carport systems worldwide. It is part of a large Solar Business Group in Germany. It currently has four electric scooter models available through its dealer network in Germany, Italy, Spain, United Kingdom, Netherlands, Belgium, France, Bulgaria, Hungary, Czech Republic and Switzerland.
Charles Chen, Vmotos managing director, said This agreement with E Tropolis is another significant marketing and dollar contract for Vmoto and just goes to emphasize yet again our competitive edge when it comes to tender for new business. The discussions with E Tropolis have been ongoing for some time and the two groups have worked closely to ensure the standard and quality of electric scooters to be produced match E Tropolis high standards for their customers.
Jan Christian Schroder, general manager of E Tropolis, said the agreement with Vmoto is a logical step for E Tropolis to strengthen its position as one of the leading companies for electric mobility in Europe. It will see a change from silicon battery to removable lithium battery for the companys Retro, Bel Air and Milano models.
A delegation of E Tropolis general managers, product and technical management will visit Vmoto to finalize the orders to be shipped to Europe in January 2013. (ASX: VMT)
The Kuantan High Court has denied an application by parties associated with the Save Malaysia Stop Lynas (SMSL) group for an injunction against Lynas Temporary Operating Licence (TOL). There is now no injunction or stay preventing Lynas from operating its Malaysian plant.
Lynas said it is also pleased that the Kuantan High Court has added Lynas as a party to the application by SMSL for a judicial review of the Ministerial decision to dismiss an appeal against the Atomic Energy Licensing Boards approval of the TOL.
The hearing of the judicial review application is expected in a few months. The Malaysian government and Lynas said they intend to strongly defend the Ministerial decision.
The institutional placement is at 75 cents per share. It comprises a $60 million institutional placement under current placement capacity, and $90 million subject to shareholder approval.
The share purchase plan will be at the lower of the price paid by institutional investors under the placement or a 2.5 per cent discount to the five day volume weighted average price after the offer period. The $50 million share purchase plan is partially underwritten to $25 million.
Funds raised will be used for working capital and corporate purposes during commissioning and ramp up at the LAMP.
Following the raising, Lynas expects to have enough working capital through to positive cash flow, sufficient funds to meet capital expenditure needs and a significant cash buffer for unforeseen events. (ASX: LYC)
For tranche 1, M&G has subscribed for 30 million shares for $15 million, increasing its interest in Galaxy to 19.3 per cent.
Tranche 2 comprises ECE subscribing for 132.4 million shares for $66.2 million. This will give ECE a 19.8 per cent interest and reduce M&Gs interest to 16.4 per cent.
Tranche 2 is subject to due diligence by ECE, and approvals from the Jiangsu Provincial Development and Reform Commission and Jiangsu Provincial Department of Commerce, registration with China National Development and Reform Commission and PRC Ministry of Commerce, approval from the China State Administration of Foreign Exchange Jiangsu Branch, Australias Foreign Investment Review Board (FIRB) and Galaxys shareholders.
Tranche 2 is expected to be completed during first quarter 2013, and ECE will be offered a non executive board position.
The placement will be used to reduce debt, including the maturing Lithium One convertible notes, complete the Definitive Feasibility Study and forthcoming pilot plant work at the companys Sal de Vida Lithium Brine and Potash Project in Argentina, and for working capital.
Galaxy said it expects the placements will be its last major capital raising as the company can direct the funds towards its equity component required for the development of Sal de Vida after a development decision is made. The balance of the development funds will likely come from Galaxys joint venture partner and debt funding. (ASX: GXY)
The company will offer a share purchase plan for up to $5 million at the same issue price.
The share placement was 50 per cent oversubscribed, said Orocobre. The lead manager and book runner was Cannacord Genuity (Australia) Ltd, with support from Cormark Securities Inc., and Patersons Securities Ltd.
The proceeds will fund Orocobres remaining equity contribution for the construction of the Olaroz lithium project, fund Borax Argentina initiatives, and working capital.
Managing director Richard Seville, said We continue to receive strong support from both Australian and international institutional investors. The level of investor interest in this offering reflects confidence in Orocobre and our lithium and industrial mineral assets in Argentina. The $5 million share purchase plan provides the first opportunity for smaller shareholders to invest in the company since the 1:8 rights issue over 3 years ago.
With completion of this raising, Olaroz is fully funded through to production, he said.
Acorn Capital has increased its stake from 5.36 to 7.33 per cent. (ASX: ORE)
Micro Cap Companies
Enerji said the customer has requested an examination of its two other sites under the same assessment process. Both of its mine sites are powered by reciprocating diesel generators and are well aligned with Enerji's core technical and commercial capability.
The other report, for an industrial site, revealed significant potential for the application of Opcons Powerbox technologies in conjunction with Enerjis heat capture expertise. As Enerji previously foreshadowed, this is a more sophisticated application potentially involving five Opcon units.
Enerji said the client is set to engage it to proceed with a comprehensive feasibility study expected to take four months. (ASX: ERJ)
When evaluating volcanic prospective projects Hot Rock said it looks for:
* Volcanic heat sources with a boiling upflow of geothermal water in a reservoir in areas of high volcanic terrain.
* Steam vents or fumaroles, boiling mud pools and hot springs formed from condensed steam.
* Gas chemistry from fumaroles indicating temperatures in the deep portions of the central geothermal reservoir of greater than 300oC.
* Outflows of deep liquid in the central upflow forming boiling surface springs around the base of the volcano.
* Water chemistry in the outflow springs indicating temperatures of 230oC and with higher upstream temperatures closer to the upflow.
Geothermal systems of this type are ideally suited for large scale electricity generation based on conventional, high temperature steam cycle turbines, and the company believes the Achumani project meets all of these characteristics.
Hot Rock said volcanic projects are commonly de risked because of the abundant surface signatures, and require relatively lower capex on the geothermal power plant because standard off the shelf steam turbine plant is suitable for high temperature volcanic systems as opposed to higher capex binary plant which are used at lower temperature locations.
In contrast, many Australian projects are remote and if developed would require major capex spends on grid connections to reach distant electricity markets, while the Achumani project has a major 138 220 kV high voltage transmission line 20 kilometres to the east of the project area. (ASX: HRL)
Panax said the working capital facility can be drawn at call on over the next three years. Shares will be issued at an 18.5 per cent discount to the market price before the issue.
Panax has no entry or transaction costs and can terminate the facility with mutual agreement prior to the end of the three year term with no fees payable. Deer Valley can terminate the facility if Panax has not drawn on the facility during a six month period.
Panax said it considers the 18.5 per cent discount to market to be a reasonable discount for share placements in the current financial market.
However, the large discount makes immediate capital gains attractive and it remains to be seen if Deer Valley is a serious long term investor or another overseas short term share dumper that drives down its clients share price.
Managing director Kerry Parker said the facility provides Panax with adequate working capital for corporate, liquidity, and project development purposes while it works to secure the final execution of power purchase agreements for its near term development opportunities in Indonesia, and finalizes financing negotiations.
Timothy W. Doede, portfolio manager of Deer Valley, said the agreement with Panax is the companys first foray into the ASX.
Deer Valley Management describes itself as a private money management firm formed to provide small to mid sized public companies with alternative forms of financing. It manages private capital with a highly focused strategy aimed at partnering with companies for long term repeat transactions. (ASX: PAX)
Directors Derek Carter, Simon OLoughlin, Lewis Owens, Richard Bonython, Richard Hillis, and Terry Kallis participated in the companys recent rights issue.
Australian Ethical Investment has increased its stake from 5.07 to 7.99 per cent. Minotoaur Resources Investments also participated in the rights issue but has been diluted from 18.89 to 16.95 per cent. (ASX: PTR)
International Pre-Revenue Companies
Ocean Power Technologies
OPT continues with its grid connected utility systems business, but the new business unit will aim to leverage the companys leadership in the development and ocean testing of Autonomous PowerBuoys.
Both the Utility and Autonomous markets are served by the same PowerBuoy technology, but the key drivers of the Autonomous market are the application needs of the prospective customers. OPT's products for this market have been developed for off grid applications such as defense and homeland security, offshore oil and gas operations and oceanographic data gathering.
The company believes the Autonomous PowerBuoy market could be a significant opportunity for profitable growth. It has appointed Dr Phil Hart to the new position of Senior Vice President, Autonomous Power, to lead the development of the Autonomous PowerBuoy business. Dr Hart was previously chief technology officer since joining OPT in February, 2009.
OPT has announced a Vice President of Engineering, also a new role. Like Dr Hart, Dr. Mike Mekhiche also reports to OPT's chief executive officer, Charles Dunleavy, and is responsible for the company's engineering and advanced technology development.
This includes technology delivery, enhancements and development of OPT's wave energy technology portfolio, and the next generation of PowerBuoy systems. (Nasdaq: OPTT)
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