White Energy’s BCB technology allows low quality or ‘sub bituminous’ coals to be upgraded to a higher quality product known as ‘bituminous’ coal. Higher quality coals contain more energy, which attracts a higher sales price, and contain less moisture, making them lighter and less costly to transport. Transportation is one of the biggest cost drivers in coal mining. In addition to these financial incentives, White Energy’s technology has environmental benefits, as the upgraded coal gives off fewer emissions when burned and carries less dust and ash compared to both unprocessed high and low quality coals. Of the four JV’s currently established, that with Indonesia’s 8th largest coal miner, Bayan Resources Group, to operate the Tabang coal mine in East Kalimantan is the most advanced. The structure of this JV provides clues as to how others could be established. White Energy has a 51% interest in the Bayan JV, and funds its share of the capital costs associated with plant construction in return for a proportional share in profits generated by the mine. In addition White Energy receives a 9% royalty payment on all sales. After taking capital costs into account this structure could provide White Energy with a 15% profit margin on sales of upgraded coal.

Background
White Energy is the exclusive worldwide license holder of the Binderless Coal Briquetting (BCB) process that upgrades relatively poor, high moisture coals and significantly increases their energy efficiency. The technology was developed by the CSIRO throughout the 1990’s. White Energy is in the process of commercialising its technology and is currently constructing a major commercial plant in Indonesia. In addition to its Indonesian focus, it is actively pursuing opportunities to deploy its technology across various markets including China, India, South Africa and North America.

Investment Summary
White Energy has been on our radar for some time now, and we believe the time is now right to recommend the stock as a ‘spec buy’. The stock has made a bullish break from a long consolidation phase and we anticipate that completion of the feasibility process in regard to its US JV, and the commissioning of its local small scale production plant at Cessnock, both targeted for June, will be key catalysts in driving the stock higher in the near term as investors realise the company’s future earnings potential. The absence of any current or near term earnings is a key risk facing the stock, as the company’s market cap is a hefty $660m on a fully diluted basis, which suggests that negative feedback from current feasibility studies could have a severe impact on the share price. However with the company supported by the likes of BHP Billiton, we are comfortable with the risks involved. The key to White Energy’s future growth hinges on the successful commissioning and rollout of its initial plants, after which increasing capacity, additional plant construction, and establishing more JV’s will become the focus. With over 30Mtpa worth of demand in the pipeline, the company’s earnings potential will be very strong should premium coal prices remain strong.