MARKETS SPECTATOR: Linc's welcome coal call

Linc energy's plan to exit coal has been greeted happily by investors, but it won't mean long-term stability for the group's share price.

Peter Bond is getting out of coal and investors like it. Linc Energy’s stock has gained as much as 17 per cent this morning. At 1154 AEST the shares were up 8 cents, or 9.8 per cent, to 89.5 cents after Linc’s chief executive Bond told the ASX it plans to sell or demerge its coal unit and concentrate on underground coal gasification and oil.

Perhaps this move was inevitable after the owner of Chelsea football club’s investment company signed an agreement with Linc last week. Russian billionaire Roman Abramovich’s Ervington Investments’ YakutMinerals unit and Linc will seek to develop technology for underground coal gasification. Linc has an underground coal gasification plant in Uzbekistan. Ervington and Linc are trying to produce less polluting liquid fuels. If this were to succeed bond will be able to order vessels along the lines of Abramovich’s 163 metre Eclipse said to be worth $US1 billion.

But the commercialisation of underground coal gasification remains a risky proposition. It involves burning coal deep underground, tapping the stranded reserves to produce gas for use in fuel production, electricity generation or as material in chemicals.

Linc’s investors are a volatile lot. On Monday the stock fell 18 per cent to 94 cents and yesterday dropped a further 13 per cent to 81.5 cents. Perhaps this is not surprising for a company that is both an explorer and a developer of new technology as is evident from its latest numbers. In the three months to March 31, Linc Energy Resources, an oil and gas unit of its parent, had oil revenue of $38.3 million and gas revenue of just $400.     

Three years ago Linc sold its thermal coal deposits to India’s Adani Enterprises for $500 million. Since then the price of coal has fallen to multi-year lows. Linc had been in talks to sell its remaining undeveloped coal assets with China’s Yanzhou Coal Mining and Xinwen Mining. Those discussions collapsed along with another sales process two years ago. Linc’s efforts to sell the coal unit are likely to be tortuous along with its share price.