Eco Investor Update

A Weekly News Update for Environmental Investors

11 July 2011 - No 39

Carbon Tax
The Federal Government's proposed carbon tax launched yesterday is good news for environmental investors both in the short term and, when it gets through parliament, in the long term. Full details are at the Government's Clean Energy Future web site at http://www.cleanenergyfuture.gov.au/

ASX 100

DUET Group
Standard & Poor's Ratings Services says DUET Group's BBB-/Stable corporate credit rating will not be immediately affected by its conditional asset swap agreement with both ATCO Ltd and AET&D Holdings No. 2 Pty Ltd.

The asset swap would give DUET 100 per cent of Multinet Gas and 80 per cent of the Dampier to Bunbury gas pipeline. In exchange, DUET will relinquish its 25.9 per cent interest in WA Gas Networks Pty Ltd (WAGN) and receive repayment of its $80 million subordinated loan to WAGN. The net effect of the transactions is that DUET will pay consideration of $42.5 million.

Standard & Poor's said that "In our view, DUET will benefit not just economically from an increased stake in the two businesses, but also strategically, by having more influence of the capital structure at the asset-company level. We consider that this transaction will facilitate the implementation of DUET's strategy to reduce leverage across the group, as part of wider measures to improve creditworthiness at both the holding and asset company level."

Meanwhile, Standard & Poor's has revised its outlook on DUET subsidiary United Energy Distribution to stable from negative.

"The outlook revision reflects our expectation that UED will be able to operate at its stated financial target ratios, following the recent strengthening of its financial position through recapitalization steps, including an equity injection of A$150 million from its shareholders DUET Group (BBB-/Stable) and SPI (Australia) Assets Pty Ltd (A-/Stable).

"UED has also undertaken to moderate its distributions in the medium term, as it seeks to retain cash to partly fund a heavy capital-expenditure program."

Standard & Poor's has assigned a ‘BBB-' long-term debt rating to DUET's subsidiary WAGN's new $450 million bank loan that matures in 2014. (ASX: DUE)

ASX 200

Hastings Diversified Utilities Fund
Hastings Funds Management Limited, the Responsible Entity for Hastings Diversified Utilities Fund, is entitled to a performance fee of $2.083 million excluding GST for the six months to 30 June 2011.

Hastings has agreed to receive the performance fee in HDF securities, at a minimum issue price of $2.56.

Based on the 30 June security closing price of $1.58, the value of the performance fee is reduced by $797,500 to $1.286 million.

HDF said continued solid performance has provided investors with returns of 7.7 per cent per annum since inception in December 2004.

The Responsible Entity is eligible for performance fees over each six month period where the Fund's return outperforms the Benchmark Return after taking into account prior period underperformance and any losses carried forward. (ASX: HDF)

Lynas Corporation
Lynas Corporation and Siemens' German Drive Technologies Division are to establish a joint venture company to produce neodymium based rare earths magnets for Siemens' energy-efficient drive applications and wind-turbine generators.

Siemens and Lynas said the partnership will secure a long-term and sustainable end-to-end supply chain from mine to magnet to end application. Lynas will provide the raw materials, predominantly a combined neodymium/ praseodymium metal, through a long term supply contract.

The joint venture for magnet production will be led by Siemens with the planned shareholding to be 55 per cent Siemens and 45 per cent Lynas.

Ralf-Michael Franke, chief executive of the Siemens Drive Technologies Division, said "This planned joint venture would be an important strategic pillar for us to pursue a long-term and stable supply with high performance magnets. We are convinced that Lynas is the right partner for this intention."

Lynas executive chairman, Nicholas Curtis, said Siemens is a market leader in their field of large drive technology and this is a first step to entering this long term partnership with the company.

Mitsubishi UFJ Financial Group has become a substantial shareholder in Lynas with 9.99 per cent. (ASX: LYC)

ASX 300

Ceramic Fuel Cells
Ceramic Fuel Cells has appointed Janine Hoey as a non-executive director. Ms Hoey will also serve on Ceramic Fuel Cells' Audit Committee.

Ms Hoey is 48 and has 20 years experience in commercial, operations and finance roles in the clean energy and airline industries.

Based in Melbourne, she is General Manager Group Operations and Commercial with clean energy company Pacific Hydro Pty Ltd, a director of a joint venture hydro company in Chile, and a director of carbon services joint venture company Perenia Pty Ltd.

She is also a non-executive director of Ecogen Holdings Pty Ltd which is owned by Industry Funds Management. Ecogen owns and operates 960 megawatts of gas fired generation at
Newport Power Station in Melbourne and the Jeeralang Power Station in the La Trobe Valley.

In the UK, BRE Global, an independent approvals organisation, has completed the technical assessment of Ceramic Fuel Cells' BlueGen Microgeneration Heat and Power (mCHP) product to be certified under the UK Microgeneration Certification Scheme (MCS).

The submission met all of the requirements under MCS standard MCS015 and is now awaiting final certification from BRE Global, which is waiting on accreditation from the United Kingdom Accreditation Service under standard MCS015 before it can issue a certificate under this standard to Ceramic Fuel Cells.

When final certification is received BlueGen customers will be able to benefit from the UK government's Feed in Tariff financial incentive scheme. (ASX: CFU)

Galaxy Resources
Galaxy Resources has exported its second shipment of lithium spodumene product from its Mt Cattlin project to China. Its commercial value is around US$4.5 million.

The approximately 19,200 tonnes of spodumene will be converted into lithium carbonate, a key ingredient in lithium-ion batteries.

Galaxy Resources managing director, Iggy Tan, said the Galaxy increased the volume of the shipment by over 2,000 tonnes thanks to production at Mt Cattlin continuing to perform strongly. (ASX: GXY)

Emerging Companies

CO2 Group
CO2 Group has launched a website where people and businesses can purchase carbon offset packages tailored to their lifestyle or business.

CO2 Group's chief executive officer, Andrew Grant, said the Yonderr website gives people a simple way to offset individual, family or business carbon emissions.

"Yonderr allows people who care about climate change to reduce their carbon footprint in three clicks. No rifling through power bills or calculating your kitchen waste. Just pick a package that sounds like you. People are confused enough. We want to make it as easy as possible to make a positive contribution," he said.

Projects supported by Yonderr include planting native forests in Australia, supporting wind farms in India and providing funding for landfill gas plants in the USA. Details on these projects are at the website at www.yonderr.com.au.

All Yonderr projects are fully accredited under the Verified Carbon Standard or NSW Greenhouse Gas Reduction Scheme. The Yonderr website prices carbon at a competitive $12 a tonne.

Packages range from $54 a year for an individual to $336 a year for a family of four. Business packages range from $84 per annum for a home office operator to $1612 annually for a large business.

"As political debate on climate change continues, there are a growing number of people who want to voluntarily cut their carbon right now, so we need to give them options. Most websites in this space are technical and boring. Yonderr makes carbon offsetting easy and fun," Mr Grant said. (ASX: COZ)

Energy Developments
Energy Developments has executed a $375 million secured, syndicated, multi-currency corporate debt facility that will allow it to take advantage of growth opportunities in the remote power and low emission energy sector.

The new facility replaces the company's existing project finance debt and includes the company's existing major lender, National Australia Bank, and new lenders Bank of America Merrill Lynch, Investec, Macquarie Bank and ING Bank.

The initial drawdown will be applied to repay all of ENE's existing debt facilities, currently drawn to $270 million. This excludes the existing West Kimberley Power Project financing, which remains in place on attractive commercial terms.

Managing director, Greg Pritchard said the new facility "demonstrates the strength of the company's balance sheet and cash flows, and will allow ENE to improve operating and financial returns". (ASX: ENE)

Environmental Group
Environmental Group subsidiary EGL Management Services Pty Ltd (EGLMS) is in dispute with Unitywater after having received a notice from Unitywater that it intends to call for payment under bank guarantees provided by Anglian Water to Unitywater (Performance Bonds).

The amount called by Unitywater under the Performance Bonds is $1 million, and Unitywater said it "will account for these funds to EGLMS in due course".

The Performance Bonds were provided under the original design, build and operate contract to secure performance of the plant. Environmental Group said that when it acquired EGLMS in December 2005, the original Performance Bonds provided by Anglian Water remained in place subject to contractual terms over the use and return of the Performance Bonds and a limited indemnity by EGLMS in favour of Anglian Water.

EGLMS says it is not directly liable to pay the amount or to reimburse the banks that provided the bonds. Its exposure is under its share purchase agreement with Anglian Water.

EGLMS says there is a longstanding dispute between Unitywater and EGLMS initiated by itself in which it has claimed additional costs incurred in operating the plant and remedial or replacement costs for the infrastructure. The dispute is ongoing and it is unclear whether Unitywater's recent action is related to this dispute.

"Unitywater has not provided any reasons for its actions and EGLMS is urgently seeking an explanation of the legal basis for those actions. In the interim, EGLMS disputes Unitywater's entitlement to call on the Performance Bonds," it said.

EGLMS's potential exposure if any to Anglian Water under its indemnity is unclear. "But even if Unitywater is entitled to call the Performance Bonds, EGLMS does not believe that it will be liable to Anglian Water for the total amount of the Performance Bonds given the limited nature of the indemnity provided." it said.

Despite the dispute, EGLMS continues to operate and maintain the plant and said it intends to continue working constructively with Anglian Water. (ASX: EGL)

The Australian Ethical Smaller Companies Trust has increased its holding in Greencap from 12.93 to 14.03 per cent. (ASX: GCG)

Qube Logistics
Schroder Investment Management Australia Limited has ceased to be a substantial share holder in Qube Logistics. (ASX: QUB)

Micro Cap Companies

Algae.tec director Peter Hatfull has indirectly acquired another 90,000 shares at an average price of 32 cents each. (ASX: AEB)

Australian Renewable Fuels
Australian Renewable Fuels director Philip Garling has acquired 1,363,000 shares at an average price of 2.2 cents each. (ASX: ARW)

Blue Energy
Blue Energy plans to commence exploratory drilling this year in the Maryborough Basin in Queensland once its receives government approval.

The company is currently earning a 75 per cent interest from Adelaide Energy in three Maryborough Basin permits by conducting a farm in work program, and has now executed Native Title Agreements with the traditional owners to facilitate the grant of ATP674A and ATP733A.

Environmental Authorities for the two application areas have been issued by the Qld Government and Blue Energy and Adelaide Energy are awaiting permit grant by the Government. The three permits will cover an area of 2,940 square kilometres.

The joint venture partners intend to explore for gas once all the permits are granted, targeting coal seam gas, shale gas, and conventional gas. Their location to the south of the port of Gladstone means any gas discovered will be suited for both domestic and export markets.

"A recent analysis of global shale gas potential released by the US Energy Information Administration (EIA) in April 2011 has identified the Maryborough Basin in Queensland as one of four sedimentary basins in Australia which are currently assessed to have significant shale gas potential, with a risked recoverable resource figure calculated for the Maryborough Basin of 23 trillion cubic feet (TCF)," said the company. (ASX: BUL)

Carbon Conscious and CO2 Group
Shares in Carbon Conscious have nearly tripled, shooting up to a high of 35 cents on 8 July from 12 cents on 22 June. This was despite a lack of news. The movement may have been in anticipation of the carbon tax announcement on 10 July, as fellow carbon offset company CO2 Group also saw its shares rise to 24 cents on 8 July from 16 cents on 22 June.

CO2 Group said the $23 price per tonne on carbon will provide "substantial commercial opportunities for CO2, and underpins the company’s business model". (ASX: CCF and COZ)

Carnegie Wave Energy
Carnegie Wave Energy says analysis of the data from the recent in-sea test of its CETO 3 unit is complete and the results are positive, with the measured performance in line with forecast modeled performance.

During the test the system operated through a range of wave heights from 1 to 4.6 metres and with operating pressures above that required for reverse osmosis desalination.

Managing director, Dr Michael Ottaviano, said "Knowing our computational models accurately forecast the hydrodynamic, hydraulic and power performance of the commercial scale CETO system is a critical pre-requisite for the finalization of the design of the grid-connected demonstration project."

Images and video of the CETO 3's operation are at Carnegie’s website.

Carnegie's first grid-connected, revenue generating power project will be at the same location off Garden Island in WA.

Carnegie is now at the detailed design phase and will secure all approvals, permits and offtake arrangements to enable construction in 2012. (ASX: CWE)

Intelligent Solar
The securities of Intelligent Solar have been suspended from trading as the company continues discussion with convertible noteholders, finance providers and major shareholders about funding and capital raising alternatives. (ASX: ISL)

GE Healthcare has upgraded its initial order for Nanosonics' Trophon EPR disinfection unit to over US$2.4 million following what it says is "extremely positive" initial market acceptance during the commencement of the product's US launch.

The initial order includes the chemical indicator and Sonex-HL disinfectant cartridges and will be shipped progressively. The first part was received by GE at the end of June.

Nanosonics said substantial pre-launch marketing was undertaken, and feedback from large clinics suggests the market opportunity "exceeds initial expectations". (ASX: NAN)

Panax Geothermal
Panax Geothermal's $2 million 6 for 10 renounceable pro-rata entitlement offer received acceptances for $1,304,893 including applications for $1,119,427 and applications for additional shares of $185,466.

Applications were received from 611 shareholders out of 2,300.

The Rights Issue was undersubscribed by 119,132,035 shares, but was underwritten by Taylor Collison who will take up 34,755,350 shares for a total of $695,107.

Panax also expects to receive $1 million in cash in the next month from the finalization of the Geothermal Drilling Program Grant and R and D Tax Rebates.

The proceeds of the equity raising will be used to advance Panax's near-term geothermal development opportunities in Indonesia and for working capital. (ASX: PAX)

Petratherm and its partners Beach Energy and TRUenergy Geothermal have begun fracture stimulation of the Paralana 2 deep well in South Australia.

The partners said this represents a key stage in the company's development and aims to further de-risk the geothermal energy project.

The primary aim of the stimulation work is to demonstrate the ability to propagate fractures beyond 500 metres from the Paralana 2 well.

The fracture stimulation and associated micro-seismic work will assist understanding of the sub-surface heat exchange potential for possible commercial geothermal power production. The results will also determine the best site for drilling Paralana 3, the planned deep geothermal production well.

Halliburton is the operator of the stimulation services and the stimulation works are expected to be completed within a week.

Petratherm's share price jumped to 14 cents on 8 July after rising from 8.5 cents in 28 June. (ASX: PTR)

Southern Crown Resources
Southern Crown Resources said recent exploration on its Nkombwa Project in north-east Zambia was successful with the rock-chip sampling having "identified mineralized outcrop and scree samples having rare earth element (REE) concentrations ranging up to 22 per cent total rare earth oxide (TREO)."

"Systematic traversing of the carbonatite complex with a Radiation Solutions RS- 230 portable gamma-ray spectrometer delineated two large zones of consistently anomalous Thorium (Th) radiation values. The close spatial association between REE mineralized chip samples with zones of consistently anomalous Th radiation is highly encouraging. Th is known to be a pathfinder to REE enrichment indicating that the anomalies represent promising exploration targets for REE mineralization," it said.

The most REE rich sample yet found at Nkombwa – with 22.09 per cent REO – was collected from an outcrop in the northern anomaly.

The second anomalous zone covers much of the south and south-eastern slopes of Nkombwa Hill and had a significant number of grid samples with elevated REE concentrations. (ASX: SWR)

Unlisted Companies

Renewable Oil Corporation
Virgin Australia has partnered with Renewable Oil Corporation, Dynamotive Energy Systems Corporation and Future Farm Industries Co-operative Research Centre to develop a sustainable aviation biofuel.

In what they say is a world first, the consortium plans to use fast pyrolysis technology developed by Dynamotive to process mallees, a eucalypt tree that can be grown sustainably in many parts of Australia.

The companies say that together they have expertise in growing, harvesting and processing feedstock into aviation fuel to support the development of a full scale commercial plant in Western Australia.

Plans are now being finalized for a demonstration unit that will make bio-fuels for testing, certification and public trials. The demonstration unit should be operational in 2012, and a commercial-scale plant could be operational by 2014.

Virgin Australia chief executive, John Borghetti said "Over the past few years Virgin Australia has been working with stakeholders across the industry to research and develop bio-derived renewable fuels that can be used to progressively replace conventional aviation fuels. We believe this new project has great potential given the results with the technology and the availability of this unique Australian feedstock."

Dynamotive has invested over $100 million and more than 10 years work to develop its fast pyrolysis technology from bench-scale to commercial-scale plants in Canada. The plants are equipped to make pyrolysis oil for fuels and also produce biochar for soil improvement and carbon sequestration.

Dynamotive chief executive, Andrew Kingston said "We have a great opportunity to develop a sustainable industry in Western Australia capable of producing second generation fuels that do not require food sources and have positive effects in land and water management."

ROC chief executive, Colin Stucley said the consortium offers world-class biofuel technology and a unique Australian feedstock. "We look forward to supplying commercial quantities of renewable biofuels for use by Virgin Australia and building this new business."

The Future Farm Industries Co-operative Research Centre, a national R&D joint venture, has led the commercialization of mallees trees with experts in breeding, growing and harvesting these trees.

FFI CRC chief executive Kevin Goss said "Our research shows that mallees can be planted in balance with profitable crop and livestock production in Australia's wheatbelt region. As well as becoming a source of biomass for renewable energy, they offer protection from wind erosion, help to avoid dryland salinity and provide improved livestock shelter. They even provide habitat for native birds and mammals."

More than 1,000 farmers have already planted mallees in belts on their farms, mainly in WA. Later this year the FFI CRC partnership will bring the prototype, world's first hardwood biomass harvester to WA for wide-scale demonstrations.

Renewable Oil Corporation, which identified the mallee tree as a promising biofuel feedstock, is Dynamotive's Australian partner and develops biofuel projects in Australia.

International Funds

Arkx Global Clean Energy Fund
Ascalon Capital Managers has launched a retail version of Arkx Investment Management's clean energy fund.

The new fund will give investors exposure to three key investment themes: rapid growth in energy consumption, the increasing importance of energy security, and climate change-related policies and regulation.

The Arkx Global Clean Energy Fund will have exposure to listed companies that operate in the sectors of clean and renewable energy including solar, wind, hydro and geothermal energy, a well as companies focused on energy efficiency, energy storage, electric vehicles and clean building technologies.

"With energy consumption growing quickly and governments around the world responding to climate change, pressure is building for fundamental structural, economic and social change in favour of clean energy," said Arkx managing director Geoff Evison.

"A number of large, profitable companies internationally are already heavily involved in the production of renewable energy and in energy efficiency technologies. These companies stand to be major beneficiaries as governments grow in their resolve to combat climate change while ensuring energy security," he said.

Suitable for investors with a long-term focus, the Arkx Global Clean Energy Fund aims to outperform the MSCI World Index after the deduction of fees and expenses in Australian dollar terms and over a rolling five-year period.

Arkx's wholesale fund has outperformed various benchmarks, including the WilderHill New Energy Global Innovation Index and the MSCIWorld Index since its inception in 2008.

The fund has a portfolio of 20-30 listed companies that have proven, profitable technologies and are supported by strong balance sheets. As at June 2011, the average market capitalisation of stocks in the portfolio was US$10.03 billion.

Arkx is jointly managed by Mr Evison and Tim Buckley and is part owned by Ascalon. a subsidiary of Westpac.

International Companies

Ocean Power Technologies
Ocean Power Technologies says that the first of its new generation utility-scale PowerBuoy devices, the PB150, has delivered better-than-expected initial results from tests being conducted off the northeast coast of Scotland.

Rated at 150 kilowatts, the device was designed to work in arrays of multiple PowerBuoys to generate renewable energy at commercial-scale wave power stations. The power stations are expected to have a life cycle of 25-30 years.

The unit was deployed on 15 April 15 for ocean trials that are expected to continue for another more or two.

Wave conditions encountered have included storm waves. OPT says "Electrical power generated by the PB150 has included peaks of over 400 kilowatts. Average electrical power of 45 kilowatts was generated at wave heights as low as 2 metres. These levels of power exceeded OPT's expectations of performance for this first PB150 deployment, and verifies that the system could produce up to 150 kilowatts on average in higher wave conditions."

On-board equipment replicates grid-connection conditions so the electrical systems are subjected to full operational testing for utility applications.

"The power take-off system's performance has exceeded expectations with respect to its energy conversion efficiency in the irregular ocean wave conditions encountered. The device is transmitting data in real-time for analysis by OPT's engineers in both the United Kingdom and the United States," said OPT.

A wave data buoy near the site provides detailed information on incoming waves, enabling OPT's engineers to calculate the power levels that should be achieved by the PB150, and analyze these against actual power generation.

"The result of this process confirms the Company's ability to predict accurately the PowerBuoy's performance in varying wave conditions," it said.

A video of the PB150 deployment is on OPT's website. (Nasdaq: OPTT)

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