Linc signals coal spin-off
Linc, which sold Adani the tenement for $500 million in 2010, is entitled to a $2-per-tonne royalty from the yet-to-be-approved Carmichael project, which would mine 60 million tonnes a year for at least 20 years from early 2016.
Linc chief executive Peter Bond told BusinessDay on Tuesday that Linc's coal division would "end up being floated off and stand on its own two feet".
Linc Energy shares have almost tripled since late November - when they were trading below 60¢ - closing up 10 per cent, or 19¢, on Wednesday to $2.16. The shares remain short of their high of $4.96 in September 2008.
Wednesday's gains came after Linc said two independent consultants had evaluated three formations in the Arckaringa Basin, finding they were rich in shale oil and gas-prone kerogen that "may form the basis of a new liquids-rich shale play". Linc said the resource in its 100 per cent-owned acreage compared favourably with "prolific US unconventional liquids plays like the Bakken and Eagle Ford".
It has appointed Barclays Bank to find a farm-in partner with shale oil expertise to fund the development of Arckaringa.
Mr Bond said Linc was looking for a partner to put $200 million to $300 million "into the ground and take it to the next level".
"We'll still hold a significant stake - we'll probably hold at least half of it. I don't want to just flog it off because it's too good for that, just at the moment."
Frequently Asked Questions about this Article…
Linc Energy flagged a plan to spin off its coal interests — a move the company says will let the coal division “stand on its own two feet.” For investors, a spin-off can separate coal assets (including a future royalty) from Linc’s other operations, potentially unlocking value and changing the company’s capital structure.
Linc sold the tenement to Adani in 2010 for $500 million and is entitled to a $2-per-tonne royalty on the proposed Carmichael Coal project. The article notes the Carmichael development is yet to be approved but would, if developed as planned, mine about 60 million tonnes a year for at least 20 years starting from early 2016.
Linc Energy shares nearly tripled from late November levels (when trading below 60¢) and on the reported Wednesday gained about 10%, or 19¢, closing at $2.16. The rally followed positive consultant reports on the Arckaringa Basin and the company’s coal spin-off signal. Shares still remained below their September 2008 high of $4.96.
Two independent consultants evaluated three formations in the Arckaringa Basin and found they were rich in shale oil and gas-prone kerogen. Linc said the resource in its 100%-owned acreage compared favourably with prolific US unconventional liquids plays such as the Bakken and Eagle Ford, and “may form the basis of a new liquids-rich shale play.”
Linc has appointed Barclays Bank to find a farm-in partner with shale oil expertise. The bank’s role is to source a partner to help fund and develop the Arckaringa shale opportunity.
Linc’s chief executive said the company is looking for a partner to put about $200 million to $300 million “into the ground” to take the Arckaringa project to the next level. Linc also indicated it intends to retain a significant stake in the project — probably at least half — rather than selling it off entirely.
No. The article states the Carmichael project is yet to be approved. The royalty arrangement with Linc is based on a projected development that would mine around 60 million tonnes a year for at least 20 years, with an assumed start from early 2016, but that development had not been approved at the time of the report.
Investors should note that the value of the proposed coal spin-off depends on the future realisation of the Adani Carmichael royalty (which is contingent on project approval and production), Linc’s plan to retain a significant stake in any farmed-in shale operation, the success of Barclays in finding a well-funded shale partner, and the consultant findings about Arckaringa’s shale potential — all of which can affect Linc’s share price and long-term outlook.
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