New CEO Rob Neill, a self-confessed “coal guy”, has taken on the role of revitalising the company after founder Len Walker stepped aside to focus on Cougar’s UCG projects in Asia. Being a coal guy, his different set of eyes looked anew at the two coal deposits in Queensland, both originally pegged as UCG targets. They include the Wandoan thermal coal project in the Surat Basin with a JORC resource of 360Mt (not to be confused with Xstrata’s Wandoan), and the Mackenzie PCI asset in the Bowen Basin with an exploration target of 120-170Mt.
Neither project has had much drilling but both are extremely well located in terms of a couple of key metrics. Both are close to existing operations - Mackenzie is adjacent to PCI operations such as Jellinbah and Yarrabee in the Bowen Basin, and Wandoan is close to the proposed 22Mtpa Xstrata thermal coal project in the Surat Basin.
Importantly, both assets are blessed with decent access to infrastructure. Sure, some of it might need some upgrading but this access is something many junior coal developers would give their eye teeth for.
Which might explain why Cougar, after flagging a sale of the two deposits in August has now decided to create a subsidiary vehicle in the shape of a new company called Kandoman Resources. Admittedly, the coal market has declined in the last two quarters, dragging down share prices of junior companies which in turn has made them cheap takeover targets. As Neill said, you only sell an asset once and clearly, an opportunistic offer right now could whisk away the coal deposits at heavily discounted prices.
Exactly how investors will be given a chance to invest in the coal assets will ultimately be determined by “who is sitting opposite the table,” Neill said.
The coal projects will be moved into Kandoman, a non-UCG company, which will also house any other coal assets Cougar lays its hand on; opportunities that arise as it looks for suitable coal to gasify.
“We can now offer three different levels of investment: participation at the listed company level to ensure success of a diversified energy company; a wider resources play by participating in the value upside of Kandoman Resources; and the opportunity to get involved in specific exploration projects,” Neill said.
His clear preference is for Cougar to remain involved and eventually be mining coal, potentially under Cougar’s banner and not simply project managing on behalf of a large SOE. But, he readily acknowledges he will need funding, which is most likely to be sourced in Asia. An IPO of the coal assets is an option, in which Cougar would retain a significant stake, but is by no means the only one.
Weighing heavily on Cougar’s perceived value is the legal action it is pursuing against the Queensland government after it shut Cougar’s $550M demonstration project in January 2011 when toxic chemicals were allegedly found in bore water at the Kingaroy site in 2010.
“We are being hamstrung in the eyes of investors by the legal action,” Neill said commenting on the company’s current value of around half a cent per share, or $7M (date dependent).
Neill is about to embark on a roadshow to spruik the hidden upside inherent in the company, if only in the company’s high quality coal assets.
Placing a value on pre-JORCED deposits is always hard but Neill, a consultant in a previous life, believes given the merits of the two tenements their combined worth is somewhere between $60 to $80M. At the share price level that would imply a price of around 5 cents per share.
On this basis Neill is hopeful of a stock re-rating and cash injection. Any money pumped into the company will be deployed to firm up the Mackenzie resource.
More information on Cougar Energy’s plans for UCG in Indonesia will be reported in this month’s edition of Indonesian Coal Report. For a complimentary copy of this report, email email@example.com or visit http://www.coalportal.com and sign up for a free trial.