Eco Investor Update

A Weekly News Update for Environmental Investors

13 August 2012 - No 93

____ Core Securities ____

ASX 100

APA Group
APA Group has formally increased its takeover offer for Hastings Diversified Utilities Fund (HDF), and HDF has responded that it is superior to the takeover offer by Pipeline Partners Australia. To help with the possible acquisition, APA is to issue $350 million in listed notes.

APA’s new offer is 62 cents cash and 0.390 APA securities for each HDF security, giving a value of $2.51 per HDF security based on a price of $4.85 for APA securities.

The offer is above the midpoint of the value range for HDF determined by HDF’s independent expert.

The consideration will be reduced by any further HDF distributions paid to HDF securityholders during the offer period. But if APA’s offer succeeds, and the consideration is paid by 31 December, HDF securityholders who still hold APA securities will also receive APA’s interim distribution.

The offer will close on 4 September unless extended. Pipeline Partners has until 14 August to make a matching offer.

APA has lodged a prospectus to raise $350 million through long dated, unsecured, subordinated, cumulative notes. The proceeds are for corporate purposes, investment in its infrastructure assets, and the acquisition of HDF if it proceeds.

The notes will have a face value and issue price of $100. The first call date is 31 March 2018 and maturity is on 30 September 2072.

Investors will receive quarterly payments based on the 90 day Bank Bill Rate plus the margin, which will be determined after the bookbuild and is expected to be in the range of 4.50 to 4.70 per cent. This implies an initial yield of around 8.14 to 8.34 per cent per annum, said APA.

The bookbuild to determine the margin is on 16 August, the closing date for the securityholder offer and general offer is 10 September, and the notes begin trading on ASX on 19 September. The ASX code for the notes will be AQHHA.

APA expects the notes will provide an amount of equity credit from Standard & Poor’s and Moody’s.

Chief financial officer, Peter Fredricson said “The Notes offer is part of APA’s ongoing capital management strategy, broadening our funding options for the considerable growth and investment opportunities that exist in our business. This includes organic growth investment in APA’s pipelines and related infrastructure, in the order of $300 million each year, as well as the possible acquisition of the HDF assets if our takeover is successful.

“With these Notes, our first offering in the retail market, APA’s existing Australian and New Zealand securityholders, as well as other local retail and institutional investors, are being provided an attractive opportunity to invest in a security that pays a fixed margin over a benchmark interest rate.”

Aquasia is financial adviser to APA Group and Macquarie Capital is arranger and joint lead manager for the Offer. Credit Suisse, Evans and Partners, Morgan Stanley, RBS and RBS Morgans are also joint lead managers. Forsyth Barr, First NZ Capital and Macquarie Capital New Zealand are New Zealand lead managers. (ASX: APA and HDF)

DUET Group
DUET Group’s securities touched a three year high of $2.13 on 1 August, the day after the announcement that its management would be internalized. But the price has since fallen back to around $2. (ASX: DUE)

ASX 200

Envestra’s shares reached a three year high of 87 cents on 30 July, but have since fallen back to around 80 cents. (ASX: ENV)

Hastings Diversified Utilities Fund
See APA Group story.

Emerging Companies

Gerard Lighting
Private equity takeover target Gerard Lighting Group made a net profit of $17.6 million for 2011-12. The reduction on 2010-11 was $1.9 million. Full year earnings per share were 10.14 cents compared to 11.37 cents the previous year.

Revenue was $389.3 million, down 3.7 per cent.

Managing director, Simon Gerard, said “Over the past twelve months, the Australian lighting market has been impacted by a downturn in residential building consents and continued soft levels of approval for commercial and retail construction. Further, our ability to expand margins was impacted by a competitive landscape influenced by the strong Australian dollar, resulting in increased price competition from our competitors who import the majority of their product.

“Despite these headwinds, as a Group we experienced modest growth in the specific categories of roadway, infrastructure, mining and healthcare. We continued to invest in new technology and have recently released a world leading 1,000 lumen fully dimmable LED downlight and several outdoor LED fixtures which will provide energy efficient alternatives to the traditional halogen fittings.”

As per its Scheme Implementation Agreement with CHAMP Private Equity, there is no final dividend. (ASX: GLG)

____ Satellite Securities____

Emerging Companies

CBD Energy
Hunter Hall Investment Management has sold down its interest in CBD Energy from 12.4 to 11.19 per cent or about 5.6 million shares. (ASX: CBD)

CO2 Group
The receipt of acceptances for its takeover offer has increased CO2 Group’s interest in Western Australian Resources Limited (WARL) to 75.15 per cent. (ASX: COZ)

Energy Action
8,815,934 shares and 200,000 options in Energy Action will be released from voluntary escrow when the company announces its full year results on 22 August. (ASX: EAX)

Energy Developments
Shares in Energy Developments touched a three year low of $2.22 on 3 August, then bounced to $2.40 when the company announced a 20 year contract to extend power supply to Xstrada’s McCarthur River Mine in the Northern Territory.

Energy Developments has been the sole power supplier to the mine since it opened in 1995. The new contract, which starts in January 2012 and goes to 2033, is to provide 68 MW and construct a new 53 MW gas fired power station. It will partially utilize Energy Developments’ existing 24 MW power station. The natural gas will be supplied by Xstrata from the Daly Waters to McArthur River gas pipeline.

Managing director, Greg Pritchard, said “The commitment to the extended power supply arrangements at the McArthur River Mine demonstrates the strong relationship that ENE enjoys with its existing global mining customer base and ENE’s commitment to be a competitive, safe and reliable provider of electricity to the Australian mining sector.”

“The expansion confirms ENE’s position as Australia’s largest independent remote power supplier operating in the 1 to 100 MW market, with 32 projects and installed capacity in excess of 320MW on completion of this project.”

The new power station and infrastructure will be funded from a mix of debt facilities and cash reserves.

The mine is 60 kilometres south west of the town of Borroloola. (ASX: ENE)

ERM Power
ERM Power has reminded investors that 99,146,375 shares and 5,449,849 options will be released from voluntary escrow three business days after its releases its full year results for the year to 30 June. (ASX: EPW)

Unlisted Balanced Funds

August Investments
After what it says were the disappointing results from its recent research into geothermal explorers, August Investments has sold all its holdings in Greenearth Energy, Panax Geothermal and Petrotherm. It retained its holdings in KUTh Energy and Geodynamics.

It also made some small adjustments to its portfolio. Based on the expected profit results for 2011-12, it purchased additional shares in Energy Action and M2 Telecommunications.

____ Pre-Profit Securities ____

Micro Cap Companies

Aeris Environmental
Aeris Environmental has issued 1,145,524 shares as consideration for the annual interest of $240,560 on 12.5 million convertible notes issued in a private placement in 2009.

The notes mature on 31 December 2012. (ASX: AEI)

Green Invest
Green Invest has entered a joint marketing and supply agreement with Niagara Conservation Corporation for its Green Plumbers brand in North America and Mexico.

Green Invest said Niagara is one of the leading US designers, manufacturers and distributors of water and energy conservation products, with expertise in the planning, development and management of energy and water efficiency programs for national electric, natural gas and water utility companies. It is also the major supplier of water efficient toilets and other products to the retail market.

Niagara will have an exclusive license to use the Green Plumbers brand for municipal projects and specific Niagara plumbing products.

“GNV believes that Niagara is ideally positioned to assist in growing the Green Plumber and Green Star Brands in North America and Mexico and to maximize employment opportunities for our Green Plumber (USA) members,” said chairman, Peter McCoy.

Niagara will pay Green Invest an annual license fee. It will also pay royalties for Green Star Projects. These are projects introduced to Niagara by Green Invest as well as projects sourced by Niagara utilizing Green Plumbers.

The value of the fee and royalties were not disclosed.

Mr McCoy said Green Invest is continuing discussions with other product manufacturers and industry groups about branding rights for specific product suites such as air conditioning and other water and energy efficient products. (ASX: GNV)

Nanosonics says it has responded to customer requests to track usage of its Trophon EPR disinfector by creating a Trophon EPR specific printer and software. These will allow patient records to be easily updated with details of the ultrasound probe and provide the healthcare centre with details of disinfection cycles.

The two new items will be released in the first half of the new financial year, and will add to existing products for the Trophon EPR including wall mounts, trolleys, and service contracts.

Nanosonics said the US healthcare system is placing increasing emphasis on effective auditing and record keeping measures as patient data becomes increasingly digitalized and expenditure comes under heightened scrutiny. (ASX: NAN)

Phoslock Water Solutions
The dramatic way in which Phoslock can clear up polluted water bodies is well illustrated in an article in the latest issue of US magazine Land and Water. This discusses how a severe case of liverwort and algae infection at Whitehall Pond in Virginia was cleared up using Phoslock. The situation was so bad the water was called “The Creepy Pond”.

The dramatic before and after pictures will remind investors why the environmental investment theme is so important.

The article is at www.landandwater.com and then under Aquatic Weed Control, The Creepy Pond Getting to the Root of the Problem. (ASX: PHK)

Po Valley Energy
Po Valley Energy director Kevin Eley has acquired 158,175 shares at 14.5 cents each. (ASX: PVE)

Style Ltd has appointed two new non-executive directors and a new company secretary.

Ian Unwin is a Melbourne based consultant with 35 years of management experience in a range of industries in the UK, USA and Australia. This includes five years with the Boston Consulting Group, and 12 years as CEO or COO including Carter Hold Harvey and the Australian Music Group.

Anthony McIntosh manages his family’s investments which include listed and unlisted shares, and rural, residential and commercial property.

Company secretary Mark Licciardo is with Mertons Corporate Services, a specialist corporate governance consultancy.

The appointments follow the resignation of chairman Charles Gullotta and company secretary Paul Smith.

Although under an administrator and Deed of Company Arrangement, Style has reminded the market that it is recognized in the industry as the leader in Strand Woven technology for sustainable flooring. It was the:
- First to develop and launch Strand Woven bamboo flooring (2004)
- First to develop Uniclic Floating Floor installation on SW Bamboo (2006)
- First to develop stains on SW Bamboo, called StyleGuard (2010)
- First to develop and launch the newly patented Strand Woven Eucalyptus flooring (2011)
- First to develop a transportable strand woven factory (2011). (ASX: SYP)

____ Pre-Revenue Securities ____

Micro Cap Companies

Algae.Tec has issued La Jolla Cove Investors with 377,929 shares at 26.46 cents each under their convertible note arrangement, raising $100,000. (ASX: AEB)

Dyesol says its biomimetic dye sensitized solar cell (DSC) technology has excelled in external performance testing and opened the way for the next phase in the commercial development of DSC powered devices.

“Newport Corporation's Technology & Applications Center's Photovoltaic (TAC PV) Laboratory has tested Dyesol's next generation DSC 'strip cell' active area at 7.48 per cent efficiency at one third Sun typical lower light, real world light conditions,” it said.

With performance confirmed and an initial proof of concept phase nearing completion, Dyesol Inc.'s US joint venture in Ohio, DyeTec Solar, expects to relocate and expand its workshop to allow it to enter the testing validation and prototype development phase.

This will confirm the product’s performance in building integrated applications, which is the last phase before the joint venture commences product development of a DSC enabled glass building façade product for commercial demonstration.

The testing validation and prototype development phase should take 12 to 18 months, and will focus on material evaluation, design, finalizing low cost manufacturing procedures and producing a limited quantity of façade product.

“Dyesol scientists have been achieving very high low light conversion efficiency performance for some time now, but getting third party, external validation that our DSC 'strip cells' are achieving performance levels nearing seven and a half per cent in low light reinforces the extraordinary commercial potential of DSC as a green value add technology," said Dyesol’s executive chairman, Richard Caldwell. (ASX: DYE)

Earth Heat Resources
Shares in Earth Heat Resources fell to a two year low of 1.2 cents on 7 August. This was the same day the company announced that it had raised $670,000 to help develop its Copahue Project in Argentina. The placement, to local and overseas sophisticated investors, was at 1 cent per share with one three year option for every two shares and exerciseable at 4 cents each.

Subject to shareholder approval, directors will underwrite up to $73,000 worth of shares under the placement.

“Strong interest has contributed to consideration of a modest rights issue to existing shareholders in the short term, which is likely to be underwritten,” they said.

Managing director Torey Marshall said the capital raising and consideration of a future rights issue are to ensure the company has an appropriate balance sheet during the financial gap period ahead of critical decisions to keep the development on track.

“Whilst the current investment market is not good for anyone, our project’s development schedule dictates continuous progress and the need for on going, short term funding,” he said.

“The Copahue project, a first of its kind in South America, is highly sought after by both debt lenders, power offtake partners and competitors to Earth Heat. This momentum should be continued as a solid response to the value proposition of the project rather than fall victim to current negative capital market sentiment.

“Earth Heat is the only ASX listed company of its type to have a geothermal project with a clear path to commercial development supported by both visible and tangible funding solutions. Whilst challenges are inescapable, Earth Heat continues to push towards being the first ASX listed small utility to construct and derive revenue from a geothermal power plant.” (ASX: EHR)

Enerji has raised $434,250 through issuing 48.25 million shares at 0.9 cents each. It also issued listed options exerciseable at 3 cents each by 30 June 2015. (ASX: ERJ)

Geodynamics took 22 days longer than expected to complete the reverse cementing at its Habanero 4 well, and said that partner Origin Energy will not contribute further to the well’s costs.

This is in line with their agreement that the well had to achieve interim cost and technical milestones and the final estimated cost of the well be within the agreed budget,

Geodynamics is now responsible for the ongoing risk and cost of the well. Origin retains the right to resume paying its full contribution and return to full participation at any stage. But Geodynamics said it has no knowledge of Origin’s intention at this time.

The incremental cost to Geodynamics as a result of the increased final well cost and Origin’s decision to cease further participation is estimated to be $2.76 million. Chief executive officer, Geoff Ward, said Geodynamics is well funded to complete the well and is able to absorb the incremental cost of Origin’s decision to cease participation

The well delays occured while completing the reverse cementing of the 251 mm casing in the current 311 mm diameter hole section.

Mr Ward said the decision to use reverse cementing was taken after a review of the Habanero 3 well failure identified that this was the best available method to ensure the safety and integrity of the Habanero 4 well.

This is the first time a reverse cementing operation has been carried out in Australia, he said. “The operation was identified as technically challenging during the design and engineering phase of the well with significant focus over 18 months on planning its execution bringing together experts from both within the joint venture and various organizations from around the world.

The 22 day delay was primarily due to drilling out cement encountered higher than anticipated inside the casing.

The placement of cement has been completed and the cement drilled out to the casing shoe, and an expert review of the logging results concluded that the cement placed in the upper section of the well has met its objectives.

But Mr Ward said “Cement integrity testing at the base of the well has identified that some additional work is necessary to ensure sufficient zonal isolation to protect the higher sedimentary formations from the higher pressures encountered in the bottom of the well. Further remedial work may also be necessary in order to safely conduct stimulation activities and achieve the program objectives.

“Geodynamics is currently preparing to undertake the necessary operation to complete the well section as soon as possible. This entails a 3 to 6 day operation to inject a small volume of cement at the bottom of the well in order to provide the appropriate pressure isolation, following which Geodynamics will undertake further pressure testing of the cement at the base of the well.

“Once a satisfactory pressure test has been achieved, Geodynamics will proceed to drill through the final 216 mm hole section, targeting the previously encountered main fracture system. Geodynamics expects to complete the drilling of the Habanero 4 well by the end of August.

“The total cost to complete the well and associated stimulation and open flow test activities is now estimated to be approximately $50 million, an increase of $1.5 million or 3 per cent compared to the maximum authorized expenditure of $48.5 million agreed with joint venture partner, Origin Energy.

The well is part of the planned 1 MWe Habanero Pilot Plant due for testing later this financial year. (ASX: GDY)

Hot Rock
Shares in Hot Rock fell to an all time low of 2 cents on 19 August when the company announced a non renounceable rights issue to raise up to $1.74 million. The one for two offer is at 1.5 cents per share, and is not underwritten.

The capital raising is mainly to fund exploration in its South American projects and attract joint venture partners to fund ongoing exploration and development. The exploration programs including mapping, sampling and magneto telluric surveys will help outline geothermal reservoirs for drill testing.

The directors will take up their full entitlements, and said the company has entered into a number of firm commitment agreements to place some of the potential shortfall shares. The offer closes on 7 September. (ASX: HRL)

KUTh Energy
KUTh Energy managing director David McDonald has indirectly acquired 200,000 shares at 2.5 cents each. (ASX: KEN)

Panax Geothermal
Panax Geothermal raised $1.1 million under its rights issue. It received applications for $447,161 in the rights issue from 470 shareholders out of 2,400 shareholders. The issue was undersubscribed by 177,442,935 shares and the underwriter, Patersons Securities, will take up 93,262,631 shortfall shares for a total of $652,839.

The proceeds are for Panax’s geothermal projects in Indonesia, including legal and associated costs of finalizing power purchase agreements, site infrastructure, environmental studies, transmission line route analysis and working capital. (ASX: PAX)

Water Resources Group
Shares in Water Resources Group fell to an all time low of 2 cents on 10 August.

On 6 August the company responded to an ASX query about whether its cash burn rate, based on its June quarter report, is sustainable.

Chief executive Brian Harcourt said factors that should be taken into account are the $883,000 in proceeds from the rights issue that closed on 31 July, the program of shortfall placement in progress with $408,000 already raised, and progressive revenue generation over a 10 month build of the desalination plant and then 25 year revenue from water sales with its joint venture partner.

“The company is confident that it will generate sufficient funding from both its rights issue and additional placements, as needed, to continue to operate at its current rate. Overheads will be continually monitored and streamlined until such time as revenue generation commences,” he said.

The company expects to have negative operating cash flows for quarter three and possibly quarter four. (ASX: WRG)

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