14/05/2009

Announcement Details

ASX URL: http://www.asx.com.au/asx/research/companyInfo.do?by=asxCode&asxCode=wec#headlines

Summary

Sydney, Thursday 14 May 2009 – Further to the joint announcement just released, please find following an expanded version of the announcement incorporating key terms of the Joint Development Agreement signed between White Energy and Peabody Energy today.

As advised, Peabody Energy (NYSE: BTU) and White Energy Company Limited (ASX: WEC) (OTCQX: WECFY) today announced they have signed an agreement to pursue development of a coal upgrading plant that would be sited at a Peabody operation in the Powder River Basin.

Under terms of the agreement, Peabody also has the first right to participate in new coal upgrading development projects that White Energy undertakes in North America and China. Peabody further has a right to acquire a nearly 15 percent equity interest in White Energy.

The coal upgrading plant would utilize White Energy’s patented coal briquetting technology, a mechanical process that upgrades lower Btu coals. The process increases the coal’s overall energy content by approximately 35 percent. The resulting product is higher quality, more efficient and cleaner, with lower carbon and other emissions. The upgraded coal can be used interchangeably with high rank thermal coal for a number of applications, including power generation, industrial processes and Btu Conversion, such as coal‐to‐gas and coal‐to‐liquids.

“We view this technology as a way to unlock further value in our reserves in the Powder River Basin and at other locations to create new marketing opportunities for U.S. or export customers,” said Richard A. Navarre, Peabody’s President and Chief Commercial Officer. “Coal has been the fastest‐growing fuel for each of the past five years and will continue to be the world’s primary source of electricity. We are pleased to be partnering with White Energy to develop a coal product with expanded market reach.”

Peabody and White Energy are proceeding with engineering design and permitting activities for the first plant that are expected to require up to 24 months. The plant would be built in phases, with the first phase expected to produce more than 1 million tons of upgraded coal per year. Subsequent phases could increase plant capacity ultimately to more than 20 million tons annually. Peabody expects substantial global growth opportunities using this technology that will initially focus on applications in North America and China.

John Atkinson, Chief Executive Officer of White Energy said, “The United States is a significant consumer of coal, and public sentiment supports that we move to a market with viable clean coal options as soon as possible. Peabody, as the world’s largest private‐sector coal company, is rightfully taking a leadership position in this initiative. White Energy is delighted to be partnering with Peabody to build a significant clean coal business in the United States and also to work together to develop opportunities in the China market. Today’s agreement with Peabody complements projects we have done in other key coal markets around the world and represents another important step for White Energy in positioning itself as one of the world’s leading providers of clean coal solutions.”

Transaction Details:
The Agreement outlines the commercial framework under which the parties will jointly explore developing coal upgrading projects and provides for other rights and obligations, namely:

  • White Energy and Peabody will establish a new company which would be 55% owned by White Energy and 45% owned by Peabody;
  • The new company would enter into a long term coal supply agreement with Peabody;
  • White Energy would be responsible for the oversight of the design, engineering, construction, operation and maintenance of the coal upgrading plants;
  • Capital costs for projects would be shared in proportion to the parties respective equity interests;
  • The joint venture company would appoint Peabody to exclusively market the upgraded coal produced by the new company;
  • White Energy and Peabody have agreed to work strategically together in the U.S. and China whereby White Energy will bring potential development opportunities to Peabody for consideration before partnering with other companies in those markets. All existing joint ventures or agreements White Energy has in the U.S. or China markets are excluded from this arrangement; and
  • Subject to the approval of White Energy shareholders, Peabody will be granted an option to acquire up to 14.9% of White Energy. In this regard, Peabody will receive two tranches of options to purchase White Energy shares. The first tranche of shares, covering 4.9%, is triggered by the agreement of White Energy and Peabody to proceed with the construction of the first 1 million ton per annum facility. The second tranche of shares, covering 10.0%, is triggered upon the completion of commissioning of the first 1 MTPA plant. Peabody will have one year from the date of completion of commissioning of this first plant to exercise its option to purchase the 10.0% of White Energy shares. The strike price for both tranches of options will be set at the volumetric weighted average closing price over the 30 day period immediately prior to the date of execution of the transaction documents covering the first plant, which are currently expected to be executed approximately 1 year from the date of signing the Joint Development Agreement.Having signed the Joint Development Agreement the parties will now work together to conduct a detailed project review which includes an analysis of all engineering, design, mine integration and site selection issues. In addition a thorough permitting exercise will be undertaken involving extensive analysis of all relevant issues to satisfy regulatory requirements and the making of all necessary permit applications. Further the parties will proceed with the selection of an experienced engineering, procurement and construction contractor. Once this development review and analysis process is completed, the Joint Development Agreement requires the parties to mutually agree to proceed with the envisaged project. If the parties agree to proceed, final transaction documents will then be executed. It is anticipated that it could take up to one year from the signing of the Joint Development Agreement for the parties to sign definitive transaction documents. That timeline would result in the joint venture having a plant in commercial operation in 2012.