Commercialization of “White Coal Technology” Starts with Tabang Project; Production Ramp Beginning; Transferring Coverage at Buy

Analyst Details
Company: Merriman Curhan Ford
Analyst: Brion D. Tanous
URL: http://www.mcfco.com/

Summary

White Energy Company is focused on the commercialization of coal upgrading technologies. The company owns the global marketing rights to the White Coal Technology, a patented process that incorporates dehydrating and briquetting of lower-grade coals to achieve a higher-grade equivalent. Leveraging this fuel upgrading process, the company can take advantage of the price differential by brown, sub- bituminous and bituminous coals, yielding a high margin business which simultaneously improves plant emissions.

BCB process adds value to sub-bituminous coal. Raw feed coal is crushed and dried, obliterating its water content. The dry, crushed coal is then compacted, creating tight bonds between the coal parti- cles and eliminating nearly all voids. The result is a higher-density, higher-energy briquette with low permeability and reduced propen- sity toward spontaneous combustion. White Energy has upgraded samples from Australia, China, Indonesia, South Africa and the United States.

Multiple projects in the works. White Energy’s 51% owned sub- sidiary, PT Kaltim Supacoal, is constructing a 1M metric tonne (MT) per annum binderless coal briquetting plant in Indonesia. The JV is commissioning the facility this period while completing final plant construction, and plans to ramp production of White Coal briquettes over the next six months. The Buckskin project (1M short tons) is projected to be commissioned in June of 2010, while the Adaro pro- ject (1M MT) will take place in FY11.

Estimates and valuation. We estimate that White Energy will earn AU$0.21 per share on net revenue of AU$87M in FY11. Applying a 12-15x multiple to these earnings and discounting it back indicates a fair value for the ADR in the US$7-9 range. Critical to the com- pany’s success will be the continued attraction of well-funded part- ners to help finance the BCB technology deployment in key geogra- phies. We transferring coverage of WECFY shares with a Buy rating.