Leigh Creek Energy Limited

PCD Operations Completed and Decommissioned in FY19:Leigh Creek Energy Limited (ASX: LCK) operates in the energy sector and is primarily focused on the development of its Leigh Creek Energy Project. In a recent announcement, the company notified about the finalisation of the thyssenkrupp Concept Select Study on ISG to Fertiliser. The study forms a key component of the company’s commercialisation plans and confirms the operating and associated ongoing costs for the production of fertiliser products.

The company also updated about its large 2P gas reserve and progress, advancing the commercialisation stages of the Leigh Creek Energy Project, were acknowledged by two government agencies in Australia and China. This represented a significant third-party validation of the company’s technology, project and corporate operations. The company also notified that it has been invited by the China Economic & Trade Herald to participate in the China Development Report of National Strategy on Emerging Industries.

Heads of Agreement: Recently, the company signed an HoA (Heads of Agreement) with China New Energy Limited, to commence In-Situ Gasification in China. China New Energy has been a major shareholder of Leigh Creek Energy since March 2017 and was established with an objective to partner with overseas companies with demonstrated growth prospects, strong projects and commercial opportunities. The agreement followed successful completion of Pre-commercial Demonstration and production of significant amounts of gas. In addition, the company has also been invited by China Lian Cai Petroleum Investment Holdings Limited for admission as a member of the Shanghai International Energy Exchange.

The parties will develop a full commercial agreement through a joint working group for formation of a joint venture company. The resultant entity will be focused on the production of hydrogen and fertiliser using ISG methods that will be used in China and potentially abroad.

Capital Raising: The company recently updated that it completed an additional capital funding of approximately $3.2 million to assist the development of its namesake Leigh Creek Energy Project in South Australia.The capital raising comprised of non-brokered private placement of $14.32 million shares at an issue price of $0.225 per share. The raised capital will provide the company with required funds to continue with rapid development of LCK’s maiden 2P reserve of 1,153 PJ.

FY19 Highlights: During the year, the company continued progressing towards the full regulatory approval, above and underground construction and subsequent operation of the Pre-Commercial Demonstration Facility at the Leigh Creek Energy Project. The company received the final Activity Notification approval for PCD (Pre-Commercial Demonstration Facility) operations on 3 September 2018. The successful initiation of the gasifier and the production of first syngas at the PCD was announced in October 2018, followed by successful production of commercial syngas in February 2019. During the year ended 30 June 2019, the company reported an operating loss of $9.53 million, as compared to a loss $6.02 million in prior corresponding period.


P&L Statement (Source: Company Reports)

Stock Recommendation: Over a period of 1 month, the stock of the company generated negative returns of 11.54% and has a market capitalisation of $129.37 million. The completion of the Pre-Commercial Demonstration Facility and the subsequent large 2P reserve were the key highlights of FY19. The new Heads of Agreement signed with China New Energy Limited will help the company take its In-Situ Gasification to China. This development holds huge growth potential for the company. The company is now well positioned to move towards commercial operation, a template for the ISG safety and environmental regulatory approval process and a huge reserve supporting a commercial project. Currently, the stock is trading slightly below the average of 52 weeks low and high levels of $0.089 to $0.430. Based on the aforesaid factors, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.225, down 2.174% on 10 September 2019.

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