Offering Enhanced Transportation and Combustion Performance Leveraging “White Coal Technology”; Initiating Coverage at Buy

Analyst Details
Company: Merriman Curhan Ford
Analyst: Jesse T. Herrick
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 incorpo- rates 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.

White Coal Technology. Raw feed coal is crushed and dried, oblit- erating its water content. The dry, crushed coal is then compacted, creating tight bonds between the coal particles and eliminating nearly all voids. The result is a higher-density, higher-energy bri- quette with low permeability and reduced propensity toward sponta- neous combustion. To date, more than 20,000 tons of coal have been upgraded by the company in testing programs, including sam- ples from Australia, China, Indonesia, South Africa and the United States.

Progressing well towards commercialization. White Energy’s 51% owned subsidiary, PT Kaltim Supacoal, is constructing a 1 mil- lion tonne per annum binderless coal briquetting plant in Indonesia. As of June 2008, the plant was approximately 45% complete, and the company aims for plant commissioning in C1Q09. Parallel to the plant construction, White Energy just recently commissioned its pilot plant in Australia and has successfully produced White Coal bri- quettes.

Estimates and valuation. We estimate that White Energy will earn A$0.33 per share on revenue of A$78.6M in FY11. Applying a 30- 35x multiple to these earnings and discounting it back indicates a fair value for the ADR in the US$30-35 range, well above where it is currently trading at US$13.60 per share. We are initiating coverage of WECFY shares with a Buy rating.