Eco Investor Update

A Weekly News Update for Environmental Investors

20 August 2012 - No 94


____ Core Securities ____

ASX 100

APA Group
APA Group has again increased its offer for Hastings Diversified Utilities Fund following an increased offer by Pipeline Partners Australia (PPA).

PPA increased its all cash offer from $2.325 to $2.43 per HDF stapled security. APA is now offering another 18 cents cash to bring its offer 80 cents cash and 0.39 APA securities for each HDF security if it can acquire 90 per cent of HDF.

If APA cannot proceed to compulsory acquisition, it is still offering another 10 cents cash to bring its offer to 72 cents cash and 0.390 APA securities for each HDF security.

Even with APA securities having fallen to $4.70, the implied value of the 90 per cent offer is $2.63 per HDF security, and the implied value of the minimum offer is $2.55 per HDF security - still superior to PPA’s $2.43, said APA.

Meanwhile, APA Group has completed the bookbuild for its APA Subordinated Notes. It has allocated $475 million in firm commitments to brokers and institutional investors, and the margin has been set at 4.50 per cent per annum above the 90 day Bank Bill Rate.

The retail component of the offer closes on 10 September. (ASX: APA and HDF)

DUET Group
DUET Group’s consolidated operating revenue for 2011-12 was up 5.6 per cent to $1.22 billion but its profit after tax was down 77 per cent to $44 million on 2010-11. The fall from $198 million was due mostly to $112 million of tax losses for the Dampier to Bunbury Pipeline.

DUET said the Dampier Bunbury Pipeline’s (DBP) revenue rose 6 per cent with the full benefit of the Stage 5B expansion now incorporated in revenues.

United Energy’s (UE) revenue increased 9 per cent due to tariff increases, higher volumes and additional smart meter revenue. UE’s earnings (EBITDA) margins are expected to improve steadily over the next few years, it said.

Multinet’s revenue was in line with 201-11 as the tariff structure mitigated a 7 per cent reduction in volumes.

Chief executive officer David Bartholomew said “As a result of all the initiatives completed during the financial year, the Group is positioned to drive improved operating outcomes and returns to securityholders. The recent proposal to internalize DUET’s management arrangements provides a natural next step in the Group’s evolution to becoming a simpler and stronger investment proposition.”

DUET issued 6,807,220 securities under its distribution reinvestment plan priced at $1.955269 per stapled security.

The number of securities to be issued was capped at 15 per cent but investor applications were 35.2 per cent and they had to be scaled back.

The final distribution was 8 cents per stapled security and 16 cents for the year. The 2012-13 guidance is 16.5 cents. (ASX: DUE)

Sims Metal Management
Sims Metal Management expects its 2011-12 net loss to be around $521 million after $594 million of after tax, non cash goodwill impairment, all of which was recorded in the first half result.

The company said it is experiencing difficult operating conditions, particularly in North America, and earnings (EBITDA) before significant items will be circa $253 million and earnings (EBIT) $124 million. Revenue is expected to be around $9 billion.

Scrap intake and shipments for the year were both about 14.4 million tonnes.

Net debt at 30 June was $293 million or 11 per cent of total capital. (ASX: SGM)

ASX 200

GWA Group
GWA Group will pay a fully franked final dividend of 8.5 cents per share and 18 cents for 2011-12, but will review its dividend policy to reflect the uncertain outlook following subdued results for the year.

Revenue was $602.1 million, down 6 per cent. Net profit after tax from continuing operations fell 22 per cent to $46.2 million and earnings per share fell to 15 cents.

With the full year dividend at 18 cents per share, the 120 per cent payout ratio reflects strong operating cash flow for the year and the availability of franking credits, said managing director Peter Crowley.

Over the past three years the dividend policy has been to maintain a floor of 18 cents per share on dividends, but directors have now decided to eliminate the floor and increase the payout ratio.

“The new dividend policy for the 2012-13 year is for dividends to represent 80 per cent to 95 per cent of net profit after tax. The payout is expected to be at the higher end of this range for 2012-13 and be fully franked.”

The dividend reinvestment plan has been re-opened.

“Our businesses have performed well in a difficult market with dwelling construction and consumer confidence declining to the low levels experienced during the global financial crisis. The decline in Federal Government stimulus spending and cessation of rebates on environmental water heaters also had a material impact on sales,” said Mr Crowley.

“Despite the decline in earnings, cash flow has been managed well and we have reduced net debt to maintain a strong balance sheet to capitalize on growth opportunities.”

Bathrooms & Kitchens division sales fell 10 per cent and earnings were down from $78.9 million to $61 million, although operating efficiencies and the phase down of Wetherill Park operations improved cash flow.

Heating & Cooling division sales were down 15 per cent, with sales of environmental water heaters down significantly thanks to the ending of Federal Government rebates in February. “Commissioning of the Moss Vale water heater factory upgrade also added to costs in the second half of the year. This commissioning was largely complete by the end of June 2012 which will improve the cost base and protect margins.”

Door & Access Systems division sales Increased 22 per cent due to the inclusion of Gliderol for the full year, but underlying sales were down 10 per cent. The division is highly leveraged to new residential construction, which declined by 13 per cent during the year, he said. The closure of the Gainsborough factories at Blackburn and Kyneton were completed and will positively impact results in 2012-13.

Mr Crowley said “During the year we successfully completed the sale of non core assets, closed or phased down uncompetitive operations and established low cost efficient supply chains.

“Our priorities are in the core building fixtures and fittings segment, leveraging growth opportunities and focused acquisitions in product and market adjacencies. The business is in a good position to take advantage of any future market upturn and acquisition opportunities.”

“The outlook for 2012-13 is difficult to assess but improved building approvals in the last quarter of 2011-12 should flow through to higher sales in late 2012. The successful restructuring from last year has positioned the businesses, with lower cost structures, to take maximum advantage of market opportunities. We are not waiting for the market to return to growth and are seeking opportunities to grow from new product launches, new channels and sensible acquisitions,” said Mr Crowley.

Chairman, Geoffrey McGrath, said “The Board is committed to reducing energy, carbon emissions, water and waste across the GWA Group operations. GWA reports its group carbon emissions annually under the Federal Government's National Greenhouse and Emissions Reporting (NGER) Scheme and the reports can be accessed on GWA's website.

“An important project undertaken during the year was the upgrade of the Dux water heater factory at Moss Vale which aims to minimize the use of energy, waste and raw materials used in the factory. This project included capital expenditure of $3.5 million for new tank foaming equipment which uses pentane as a blowing agent. Pentane is non ozone depleting and has virtually no greenhouse gas emissions.”

Direct and indirect carbon emissions fell from 48,000 to 38,000 tonnes. (ASX: GWA)

Hastings Diversified Utilities Fund
See APA Group story above.

____ Satellite Securities____

ASX 200

Qube Logistics
The ACCC will not oppose Qube Logistic’s acquisition of Macarthur Intermodal Shipping Terminal Pty Ltd (MIST), which trades as Independent Transport Group (ITG). Completion of the deal should occur on 22 August. (ASX: QUB)

ASX 300

Infigen Energy
Infigen Energy said its production and revenue for 2011-12 are within guidance. The company expects to report revenue of $266.6 million compared with $267.6 million for 2010-11, with US revenue at US$143.9 million and Australian revenue at $125.8 million.

US revenue was in line with expectations, and included US$3.4 million from Infigen Asset Management (IAM). Australian revenue was better than expected in the second half. Initial production from the Woodlawn Wind Farm contributed $7.9 million.

Total production was 4,538 GWh, with US production 3,136 GWh and local production 1,402 GWh.

At 30 June Infigen had 276,000 Large scale Generation Certificates (LGCs) with a book value of $10 million compared to 244,000 with a book value of $8.8 million at 30 June 2011. The closing market price of $36.42 per LGC at 30 June was lower than the average price at which they were brought to account, giving a write down of $0.5 million. (ASX: IFN)

Emerging Companies

Clean TeQ Holdings
Associated Water Pty Ltd, a joint venture between Clean TeQ Holdings and Nippon Gas Co., Ltd, will in September commence commissioning a plant in Queensland to process coal seam gas water.

The dual stage plant, known as DeSALx, is at the WAMBO Cattle Company operation, west of Dalby. The plant will accept coal seam gas water with total dissolved solids (TDS) of about 5,000 mg/L and produce water with a TDS of around 1,500 mg/L, which is suitable for irrigation and livestock needs.

The joint venture aims to provide sustainable water treatment to the coal seam gas (CSG) industry using Clean TeQ’s Continuous Ionic Filtration (CIF) technology as a basis for the desalination process.

The plant will have a 0.5 megalitres per day (MLD) (500m3/day) semi portable modular CIF plant and a 0.5 MLD containerized mobile CIF plant operating together to perform the desalination process (DeSALx).

WAMBO Cattle Company will use the desalinated water for cattle watering, irrigation and augmenting its stored water.

Clean TeQ said this will highlight the opportunities for the CSG industry and agriculture to co exist through the efficient and economical processing of associated waters for beneficial reuse by local landholders and communities.

Chief executive, Peter Voigt, said “The coal seam gas industry is heading towards the bulk transportation of produced water to centralized holding ponds and subsequent treatment by large reverse osmosis treatment plants. This approach has a number of limitations including the transportation costs, the increasing volumes of water involved in the industry and the relocation of the water from its origin.

“The benefit of the Associated Water approach is to treat the water and make it available locally for the landholders and farmers. We are investing in this project, independent of the CSG companies, to demonstrate and highlight the benefits that the desalinated water can bring to local communities and to showcase an innovative holistic solution to water management.”

“We believe CIF has the potential to be the most appropriate treatment technology for the responsible management of coal seam waters, and when partnering with local communities provide viable localized beneficial re use opportunities.”

The demonstration follows the sale of a 4 MLD CIF water treatment plant to QGC. This is yet to be commissioned.

Clean TeQ says the coal seam gas water market has the potential to be one of the biggest emerging water treatment markets globally. The rapid development of new gas fields has led to an urgent need for cost effective water treatment solutions that minimize the environmental legacy of by product brine streams. (ASX: CLQ)

ERM Power
ERM Power and its partners have received approval from the WA Department of Mines and Petroleum for the Environmental Management Plan to construct the Red Gully Gas and Condensate Processing Facility.

The approval is for all of the works, including the earthworks, the export pipeline route and the construction of the Processing Facility. (ASX: EPW)

____ Pre-Profit Securities ____

ASX 300

Ceramic Fuel Cells
Ceramic Fuel Cells has extended the closing date for its rights issue from 20 August to 10 September. The 1 for 4 offer is to raise up to $13.8 million at 6 cents per share, but its shares have fallen just below this level. (ASX: CFU)

Micro Cap Companies

Australian Renewable Fuels
Major shareholder, Wasabi Energy Ltd, has sold 275 million shares in Australian Renewable Fuels (ARFuels) to Canadian advanced biofuels company Lignol Energy Corporation.

The sale price is C$4,265,770 and comprises C$500,000 cash, 19 million LEC common shares at C8 cents per share for a total of C$1,520,000, and a 10 month secured convertible debenture for C$2,245,770. The debenture is convertible into LEC common shares at C15 cents per share, and will convert if LEC’s shares trade at or above C20 cents for seven or more consecutive days.

The interest rate on the debenture is 7 per cent payable in cash or LEC shares at the market price on the payment date.

The sale gives LEC 11.2 per cent of ARFuels. Wasabi will retain 21 million shares in ARFuels.

Lignol is developing biorefining production technologies for advanced biofuels, including fuel-grade ethanol and renewable chemicals from non-food cellulosic biomass feedstocks. (ASX: ARW)

Clean Seas Tuna
Tough times continue for Clean Seas Tuna with a loss of $30.75 million for 2011-12.

The result includes impairment charges of $17.7 million. The loss on underlying operations was $13.04 million against a 2010-11 loss of $14.73 million.

“This result is extremely disappointing especially given the positive expectations from moving to new sites for grow-out,” said the company. “It is equally disappointing in that the results are similar to last financial year.”

The losses are not sustainable and the company has concluded it needs new partners and/ or to rationalize its assets to ensure it can support its primary objective of propagating Southern Bluefin Tuna (SBT).

The company is seeking a joint venturing or the partial sale of its yellowtail Kingfish operations, sales of surplus assets, a consolidation of its Kingfish activity, and accelerated advancement of its SBT spawning timing to October.

It has appointed investment advisor BBY Limited to facilitate the partial sale or joint venture of the Kingfish business and to assess financing initiatives. It aims to complete these by the end of the calendar year.

Cost reductions mean reducing its workforce.

The company had $3.85 million cash at 30 June, sufficient for business into calendar year 2013.

“We believe that the Company will move through these difficult times to realize the initial goal of commercially producing propagated Southern Bluefin Tuna. The major risk that may influence the chance of realizing our restructure will be the ongoing health of the remaining Kingfish stock,” it said.

The severe health problems in the yellowtail Kingfish resulted in losses from fish mortality, poor fish performance, compromised fish growth and expenses investigating the health problems. The consequent write down of assets in the Kingfish business was $17.7 million.

The company said it believe its SBT fingerlings need to be at least one kilogram to survive the winter sea temperatures. The earlier transfer to sea provides the fingerlings with a greater likelihood of achieving this size before winter. (ASX: CSS)

Green Invest
Green Invest gas raised $97,500 through a placement to sophisticated investors at 6.5 cents per share. (ASX: GNV)

Po Valley Energy
Po Valley Energy director Kevin Eley has indirectly acquired 164,825 shares at 15 cents each for a total value of $24,649. (ASX: PVE)

RedFlow is to raise $4.9 million via an underwritten pro rata one for one non renounceable entitlement offer at 6 cents per share.

The offer is underwritten by RBS Morgans Corporate Ltd and closes on 10 September. Directors said they intend to take up their entitlements in part or full.

The proceeds will go for working capital to execute the company's strategy.

The company said its prior commercialization strategy was too ambitious and complex, and its ZBM batteries were not at a stage of development that warranted the scale of operations in place. It also lacked the expertise to facilitate a smooth transition to the outsourcing of manufacturing.

“The battery, and the way it is made, is unique. We underestimated what this meant and the need to redesign and refine some manufacturing processes before moving to commercial manufacture,” it said.

“We have engaged internationally experienced manufacturing advisers who are developing a detailed plan with us. This will correct the mistakes made in getting our product ready for commercial manufacture.

“We have also put our agreement with Jabil on hold. Notwithstanding this, Jabil remains very supportive of RedFlow and our growth plans.

“We now know we need third party help to take our battery to the world. The parties we are in discussion with have the capital and name necessary to market and commercialize our technology globally. Future arrangements with large partners will substantially de risk execution of RedFlow’s business plan.”

The new business model is selling commercial ZBMs to System Integrators who use them in their Energy Storage Systems which they then sell to end users. RedFlow has a 36 month plan to achieve this. The model allows RedFlow to focus on its core competency, which is the ZBM battery.

RedFlow said negotiations with international systems integrators are progressing well.

One negotiation with a large European based global conglomerate has seen a terms sheet agreed which involves the joint development on a MW scale pilot demonstration energy storage system to test applications and business cases. The demonstration system is expected to be located at a USA customer site and the project budget is approximately $5 million to be funded jointly by the European conglomerate and its customers.

The two year objective is to develop a branded and marketed AC energy storage system product for USA and Europe incorporating RedFlow’s ZBM batteries.

RedFlow has signed an agreement with the University of Sydney to commence developing next generation materials and components over three years. This is through an Australian government sponsored ARC linkage project with funding of $420,000 and another $202,500 over three years from RedFlow.

The project incorporates an exclusive option licence to exploit all registrable intellectual property on commercial terms to be agreed. The team consists of two professors, and a number of researchers and PhD students who will work on specific aspects of zinc bromide batteries over the next three years.

The company has reduced its staff from 120 to 47, and is targeting a cash burn of $690,000 per month, down from $990,000 in June and $1,450,000 prior to the strategic review. (ASX: RFX)

Vmoto has changed its financial year end from 30 June to 31 December, effective from 31 December 2012. The change will align Vmoto’s financial year end with that of its Chinese subsidiaries, which together form the biggest part of the company’s consolidated accounts. (ASX: VMT)

____ Pre-Revenue Securities ____

ASX 300

Galaxy Resources
Galaxy Resources says it has further improved the quality of lithium carbonate produced at its Jiangsu Lithium Carbonate Plant in China.

Testing of the latest battery grade production has shown significant reductions in sodium (Na) and sulphate (SO4) levels in particular.

Sodium levels are one of the most detrimental impurities for lithium cathode and lithium ion battery makers, potentially causing oxidation and gasing in the final battery. , it said. In lithium ion batteries excessive sodium can reduce charging and discharging capacity and the life of the battery.

The latest lithium carbonate testing shows sodium levels have dropped from 117 parts per million (ppm) to a low of 20 ppm. Battery grade is less than 250 ppm.

Managing director Iggy Tan said “We not only continue to meet all the impurity tolerances required by our battery cathode producing customers but are now consistently producing a lithium carbonate product that is superior to almost all of our competitors in the lithium carbonate market.

“These latest results justify our decision to have designed the Jiangsu Plant to produce high purity lithium carbonate. The additional quality improvements we have made to the production processes at Jiangsu have been patented by Galaxy.”

Improvements in sulphate (SO4) levels were from the original batches of 790 ppm to around 530 ppm. Battery grade is less than 800 ppm. Excessive sulphate impurities can lead to gassing and leakage in lithium ion batteries.

Galaxy believes it is achieving one of the best quality battery grade products available in the market today.

Galaxy made a loss of $49.6 million for the six months to 30 June. (ASX: GXY)

Micro Cap Companies

Actinogen received a query from the ASX about its cash level, and responded that it is expecting a payment from the Australian Taxation office for a research and development taxation offset.

In addition the company has suspended director’s fees except for those of Scientific Director Professor David Keast, who is receiving a reduced salary of $60,000.00 per annum until further funds are raised. If necessary, the company will suspend other significant expenditures including ongoing scientific research to conserve cash. The company is looking at fundraising options. (ASX: ACW)

Carnegie Wave Energy
Carnegie Wave Energy has issued another 4,605,263 shares at 3.8 cents each to The Australian Special Opportunity Fund LP, raising $175,000. (ASX: CWE)

Cell Aquaculture
Actinogen received a query from the ASX about its cash level, and responded that it has sufficient cash for the immediate future.

Its 90 per cent owned Malaysian subsidiary is expecting a progress payment of $330,000, the company itself has reduced costs, and is confident it can raise capital at short notice. (ASX: CAQ)

Shares in Enerji fell to a three year low of 0.5 cents on 10 August.

Chairman Ian Campbell said some of Australia’s biggest mining companies could slash remote site power fuel expenditure by up to 12 per cent using the company’s Opcon Powerbox technology. Some of Australia’s biggest mining companies are said to spend more than $1 billion annually on fuel, giving large potential savings. (ASX: ERJ)

EnviroMission has raised $260,000 through a debt conversion, with shares issued at 3.75 cents each. (ASX: EVM)

Panax Geothermal
Panax Geothermal managing director Kerry Parker directly and indirectly acquired 5,142,903 shares and 2,571,451 listed options under the company’s recent rights issue. (ASX: PAX)

Water Resources Group
Water Resources Group said its Research and Development division, Campbell Applied Physics Inc (CAP), was a presenter at US president Barack Obama's roundtable conference at The White House on advanced clean energy manufacturing.

CAP's involvement was attributed to its use of Oak Ridge National Lab's Manufacturing Development Facility (MDF). For the past 12 years, CAP has collaborated with the US Department of Energy’s National Labs to create the technologies used for Water Resource Group’s seawater reverse osmosis and ground water treatment systems.

The US National Labs works as the research arm for desalination advancement while CAP develops and commercializes the technologies. CAP’s chairman, Robert Campbell, said Cap has achieved what it has in large part with help from the Department of Energy.

The MDF enables the company to access advanced manufacturing processes developed by Oak Ridge National Labs and its other research partners including Dow Chemicals, Ford, GE and others.

WRG said it expects significant benefits from CAP’s use of the facilities including component cost reduction, additional IP protection, exclusive fabrication technology, reduced development lead times and onsite training. (ASX: WRG)

____International Core Securities____

Contact Energy
New Zealand utility Contact Energy said it had a successful 2011-12. Profit was NZ$190 million, NZ$40 million or 27 per cent higher than in 2010-11.

Chief executive, Dennis Barnes said “Our results show substantial improvement in our underlying business performance as we have utilized our flexible fuel and generation portfolio and responded decisively to increased activity in the retail sector.”

The final distribution to shareholders will be the equivalent of NZ12 cents per share, resulting in a total distribution for the year of NZ23 cents per share. This will be paid in the form of a non taxable bonus share issue under the profit distribution plan. Contact said it will utilize the profit distribution plan for the last time.

Chairman, Grant King, said “As Contact nears the end of its current investment program it is pleasing to see an improvement in earnings that should see Contact revert to a cash distribution in 2013.”

The distribution is a payout ratio of 93 per cent per cent of Contact’s underlying earnings per share. (NZX: CEN)

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