Synthesis Energy Systems, Inc. (NASDAQ:SYMX)
F2Q10 (Qtr End 12/31/09) Earnings Call Transcript
February 8, 2009 4:30 pm ET
Ann Tanabe – VP, IR
Robert Rigdon – President & CEO
Kevin Kelly – Chief Accounting Officer
Don Bunnell – President & CEO, Asia-Pacific
David Begleiter – Deutsche Bank
Silka Koopf – JP Morgan
Ladies and gentlemen, thank you for standing by, and welcome to the second quarter financial results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session with instructions being given at that time. (Operator instructions) As a reminder, this call is being recorded.
I would now like to turn the conference over to your host, Ann Tanabe. Please go ahead.
Thank you. Good afternoon and thank you for joining Synthesis Energy Systems Conference Call. My name is Ann Tanabe and I’m the Vice President of Investor Relations for SES. Today, we’ll discuss results for the quarter-ended December 31, 2009 and we’ll provide an update on corporate development. Following our prepared remarks, we will open the line for a brief question-and-answer session.
Before we begin, I’d like to remind you that during this call we will be making forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact are forward-looking statements.
Forward-looking statements are subject to certain risks, trends, and uncertainties that could cause actual results to differ materially from those projected. Although we believe that in making such forward-looking statements our expectations are based upon reasonable assumptions, such statements may be influenced by factors that could cause actual outcomes and results to be materially different from those projected. We cannot assure you that the assumptions upon which these statements are based will prove to have been correct.
Please refer to our annual report on Form 10K for the year ended June 30, 2009 for a further discussion on risk factors. A copy of our filings can be found on the Securities and Exchange Commission’s Web site at www.sec.gov or on our Web site at www.synthesisenergy.com.
I would now like to turn the call over to Mr. Robert Rigdon, our President and CEO. Robert?
Thank you, Ann. Welcome, everyone to our conference call for the quarter ended December 31st 2009. Like we’ve done in the past, we are holding this call from both our Shanghai and our Houston office locations. Joining me at this early morning hour in Shanghai is Don Bunnell, our President of Global Licensing, and joining Ann on the call from Houston is Kevin Kelly, our Chief Accounting Officer and Controller.
I’m happy to be here today to share the accomplishments we’ve achieved during the last quarter and to give you some insight as to what lies ahead for SES. But first let’s begin with Kevin, who will provide an overview of our second quarter financial results. Kevin?
Thank you, Robert. For the second quarter, our product sales at our Hai Hua joint venture plant increased by 47% compared to our first quarter. The higher revenue was due to a 40% increase in syngas production and an increase in by-products revenue due mainly to a full quarter of oxygen sales to Hai Hua under our ASU cost sharing arrangement, which began in September 2009.
The plant was available for full capacity syngas production for 97% of the quarter. Other revenue resulted primarily from a grant received from the local science and technology bureau in conjunction with a lignite test at the Hai Hua joint venture plant in November 2009.
Cost of sales and plant operating expenses increased 50% compared to the first quarter due to the increased syngas production and due to higher maintenance costs that the plant incurred during a two week shutdown period in December.
G&A expenses were $2.9 million, which is a 5% decrease from the first quarter. Project and technical development expenses were $0.5 million and included advanced analytical flow modeling work for our gas fired system and project feasibility studies for the possible expansion of the Hai Hua joint venture plant that Robert will discuss further in a few minutes.
On a consolidated basis, we recognized an impairment loss on the Golden Concord joint venture assets of $6.6 million, which were primarily related to engineering and initial construction work for the originally-planned methanol and DME project.
The remaining non-controlling interest of our partner, Golden Concord, in the joint venture of approximately $2.2 million was recognized this quarter as the result of the joint venture’s impairment loss. Later in the call, Robert will provide more detail in regards to our decision to impair the assets of the Golden Concord joint venture at this time.
Our operating loss for the quarter, excluding the impairment loss and our recurring non-cash expenses was $3.5 million. At December 31, 2009, we had cash and cash equivalents of $50.9 million and working capital of $45.2 million. Robert?
Okay, thanks, Kevin. As we mentioned in our press release, our Hai Hua joint venture continues to operate very well and for the second quarter of fiscal 2010, we are reporting our highest quarterly revenue to-date of $2.6 million. We’re now in the middle of our third consecutive quarter demonstrating high overall plant availability of about 97% while consistently meeting Hai Hua’s syngas quality requirements.
During this last quarter, we completed a successful commercial scale demonstration at our Hai Hua facility using lignite coal from the inner Mongolia region of China. This was really a significant achievement and milestone for us and our U-GAS technology, as it demonstrated our ability to efficiently gasify lignite coal.
This ability distinguishes us by allowing our own projects and our customers projects to whom we license our U-GAS technology to have low production cost due to the very low cost of these fuels relative to traditional coals used in commercial gasification plants. Cleanly unlocking the value of these low rank coals is a central part of our value proposition.
As a result of the lignite demonstration, we have seen a large increase in visits to our Hai Hua plant from potential customers and partners who want to see first-hand our U-GAS technology in operation.
Last year, we hosted over 30 plant visits and expect that number may increase during this year. Visitors at the plant have included Chinese government officials, Chinese coal companies, major gas companies in China who are interested in the technology for converting lignite into SNG, steel and power companies from India, a U.S. chemical company, a Japanese steel company, South Korean power and gas, Australian coal companies interested in coal to liquid fuels. Actually, quite a global and diverse group of visitors going through our Hai Hua facility.
We are extremely pleased with our technology’s performance at Hai Hua and our ability to demonstrate operational success. Now we’re seeing an opportunity for us to optimize this asset and create more value through a Phase II expansion of the plant.
Now as we’ve mentioned previously, we’ve been investigating this possibility for the past several months. And although we have not yet made a definitive decision to move forward, we have increased the likelihood of such an expansion significantly over this past quarter.
Presently, our view of the scope of the expansion is for production of monoethylene glycol or glycol for short. This is based on the results derived from a feasibility study we completed last quarter using the certified Chinese design institute, which specializes in syngas to glycol plant designs and provides the catalyst-based technology to convert syngas to glycol.
And government approvals are a key component to moving any project forward in China. Approvals are more challenging in today’s market conditions and are being reserved for only the most desirable projects.
I’m very pleased to report that late last week we did receive the required government approval for our Phase II expansion project. This approval coupled with the previous environmental approvals are the key approvals required for us to expand our current facility to include production of approximately 50,000 tons a year of glycol and associated byproducts.
This approval allows us to commence execution and also describes certain details of the expansion project, including, but not limited to its use of land, the main additional facilities required, and the use of existing facilities in syngas. This is really an important milestone towards completing the development of our Phase II expansion.
We are very encouraged by the financial potential of converting coal to glycol in China. Today, China imports about 70% of its glycol, which is an important raw material used in a wide variety of products and applications, including the manufacture of polyester fibers in the textile industry, special resins, anti-freeze formulations and other industrial products. The price of glycol largely tracks crude oil price as it is normally derived from ethylene, which is produced from crude oil derivatives such as naptha.
Based on the results of the feasibility study, we believe that our technology integrates quite well with the syngas to glycol technology to create an economical production platform.
Our goal is to structure and finance the Phase II expansion with third parties contributing all the required new equity, as we’d contributed a portion of the existing assets. We’ve been speaking with several interested parties and we believe this approach is viable.
In the coming weeks, we will be continuing our discussions with prospective partners as well as developing a detailed implementation plan that will define the new production facilities, modifications to the facility as well as current facility outage time required to complete the required construction and modifications.
I believe we are demonstrating reliable operations at Hai Hua and we now are developing an encouraging opportunity to create more value from this asset through the expansion I just described. I look forward to updating you on our future progress on this project.
And moving on, I would like now to discuss our Golden Concord joint venture project. As you may have read in our press release, we have taken a non-cash impairment charge of $6.6 million related to this project.
Based on the developments of the past quarter, it became clear to us that the impairment of these long live assets associated with the original methanol and DME project is now the prudent accounting treatment. Over the course of last year, we continued the development of the project with a primary focus on attracting new partners that would also provide the necessary debt guarantees.
What we’ve learned through this process is that the parties who have expressed interest in working together with us in this inner Mongolia region are primarily focused on gas producing and distribution projects such as Synthetic Natural Gas known as SNG and town gas and a large-scale chemicals such as olefins.
An important event occurred for us during the past quarter when we completed our demonstration run of inner Mongolia lignite coal at the Hai Hua facility. As you may recall from our previous communications, this demonstration run on lignite was very successful and since that time has drawn the attention of some of China’s significant gas companies, who are quite interested in our technologies ability to help them convert these very low cost coals inner Mongolia into SNG.
In similar fashion, we are seeing an opportunity in the same region for our technology to be implemented on a larger scale called “olefins projects.” This is all driven by the abundance of this low cost lignite fuel in the region and our demonstrated ability to gasify it. At this time, we are focusing on developing these new and potentially high value opportunities.
Our decision to impair the existing asset is based on the fact that these costs were incurred for the design and initial construction related to the original methanol and DME facility and these new opportunities we’re developing at this location will take new designs and more time than the original project scheduled.
Also, as you may recall, the Golden Concord joint venture was originally planned to be our first methanol project in China. But during the early stages of the recent economic crisis, we decided to accelerate our Yima project development due to the fact that we had already achieved an agreement from Yima to provide the debt guarantees for that project.
We did successfully accelerate Yima and completed the financial closure of that project in August of last year. Our investment in the Yima project positioned us well for taking advantage of growth in the methanol price spread as China continues to move towards more methanol fuel blending into gasoline.
Now is a good time for me to go ahead and give you a quick update on the status of our Yima project. As we reported last quarter, the joint venture companies have been established and construction activities for site preparation have been underway.
The joint venture is contracted to East China Engineering Corporation or ECEC to carry out the basic and detailed engineering work for the project. ECEC is a subsidiary of China’s largest chemical engineering group, China National Chemical Engineering Corporation, in this past quarter we entered into a collaboration agreement with ECEC to work together not only on Yima, but on the engineering, design, procurement, and construction of our U-GAS gasification projects in China.
In terms of engineering progress, our engineering and technology teams have completed and delivered the U-GAS technology process design package to the Yima joint venture. Based on this design package, ECEC completed the basic design package engineering at the end of December. The engineering has now advanced into the detailed engineering design phase.
In addition, joint venture has awarded the quality assurance and quality control contracts to the company to supervise the site construction work and ensure quality compliance. The piling, foundation, and concrete construction work is expected to start in the next month as we move into the spring season.
In the meantime, procurement for equipment requiring long lead time manufacturing is on schedule is in the tendering phase. Now this includes items such as the air separation unit, the methanol synthesis equipment, boilers, ash coolers and heat recovery equipment in the plant.
On the financing side of the project, the Yima joint venture has also filed the necessary documents for its bank loan and the loan approvals have now advanced through the provincial levels of the respective lending banks, which upon review would be submitted to their head offices in Beijing for final approvals.
The potential banks involved in our loans are the Bank of China, the Agricultural Bank of China and the Industrial and Commercial Bank of China. As you may recall, the Yima joint venture has an agreement from the Yima coal group to finance the project should the bank loans not progress as expected.
We expect to see significant construction progress as we move towards the spring and summer months of this year, and we are on target to achieve mechanical completion in the first half of 2012.
Before I turn the call over to Don, I would like to make a few comments regarding some key organizational changes that we have made in the last quarter. In December of last year, we decided to make some restructuring moves better enable us to launch our licensing business as well as deliver our technology designs and products.
Don, as co-founder of the Company and as an important leader in growing the Company to where we are today, will now be combining his significant business development experience and energy towards growing our licensing business as President of Global Licensing for SES.
Foon Lee Leow, with his deep business knowledge in Asia and China from his many years in the region with both GE and Shell, is now our Managing Director for all our China business and for our China-based support of the global licensing business. Foon Lee and Don are both business leaders in whom I have the utmost confidence and respect and I believe they will serve us well in these new roles.
I would now like to turn the call over to Don, who will update you on our global license business. Don?
Thanks, Robert. I’m excited to be leading this new business and believe that the licensing business opens a new avenue for our revenue growth. We’ve been able to launch this new business because of the successful track record we’ve built at our Hai Hua plant, not only gasifying hash bituminous coals, including coal washing wastes, but also because of our success gasifying high-ash sub-bituminous Yima coal and most recently, the inner Mongolian lignite.
Our technology achievements at Hai Hua, coupled with Yima’s endorsement of our technology and our revised agreement with GTI, have set the stage for this new SES business segment.
As we roll out the licensing business, we are focused primarily on four regions – China, India, Australia, and the U.S. The focus in China, India, and Australia is primarily on low quality coals, which is abundant in all three of these countries. In the U.S., the focus primarily is biomass to biofuel opportunities.
I’ll talk about each of these countries in a little more detail, but what I’m seeing in the short amount of time since we launched our licensing business is a lot of interest from potential licensees. We are currently in discussions with approximately 15 parties about potential U-GAS licenses and most of these parties have sought out SES.
In terms of organization, we have organized ourselves both in China and the U.S. to launch and deliver the licensing business. At this time, we plan to utilize our experienced team in China, combined with our local China engineering and sourcing partners to provide a low cost method of delivering our technology designs and specialized equipment for all the regions in which we are doing business.
We are also utilizing GTI’s resources to support various aspects of our licensing efforts. We believe that this approach will allow us to launch and grow our business and as we begin to execute licenses, we will add additional resources as required.
As Robert mentioned, we will leverage off our success with Hai Hua to sell licenses and generate revenue. However, this is only part of the equation. Our licensing activities provide insight into the project development world and we plan to leverage off these insights to build a portfolio of project investment options as we license the U-GAS technology.
This project investment option portfolio will allow us to make selective equity investments in the future, thereby bringing value to SES and our licensees. This approach enables SES to accelerate the adoption of U-GAS technology without having to bear all of the development costs and risks associated with the project development business.
We also plan to leverage off our China presence to offer customers outside of China, in places like Australia and the U.S., access to low-cost equipment and modularization services. Over this year, we will be going into more detail about how we plan to roll out these services.
Now, let’s talk about our four key countries. In China, we are seeing interest from companies in inner Mongolia who have larger amounts of lignite reserves and that will be our top priority region in China. Inner Mongolia is the largest coal-producing region in China and has vast amounts of low cost lignites.
Energy and chemical projects implemented with our technology in this region enjoy significantly lower production costs because of this low cost coal that is typically mined in an open pit, thereby increasing product margins for U-GAS licensees.
Turning to Australia, as we reported in December, we have entered into a strategic alliance with Coalworks, an Australian resource owner and energy developer, to develop the Oakland synthetic gasoline project. We are advancing the feasibility study with Coalworks and are in discussions with two other companies in Australia who own large lower quality coal assets and are looking to gasify their low cost coal into high value products at their mine sites.
In addition to Australia, India is another promising region for U-GAS. I just returned from a week long trip to India where I met various government ministries and potential customers. India is a particular interest to us because like China, this is a high growth economy that has large amounts of coal.
India is the third largest coal producer, but it is a relatively new market for coal gasification. This is mainly due to the fact that almost all of India’s coal has high ash content, which makes it impractical for the industry leaders, who have sliding gasifier technology to compete in this market.
U-GAS is an excellent technology choice for India’s challenging coals and growing energy needs. We see a lot of potential here and we’ll be talking in greater detail about this opportunity as we advance our market entry strategy over the next few months.
Lastly, I’d like to touch on how we view the U.S. market. Long-term, we believe the U.S. could be a very large market for coal-based gasification to power and fuels, but as we discussed a year ago, we’re not pursuing development of large coal-based projects at this time.
However, we do believe that there may be significant near-term opportunity for us in the U.S. by leveraging our technologies capability to efficiently gasify non-food-based cellulosic biomass to make renewable fuels.
Today’s regulatory environment in the U.S. is favorable for these types of projects because increased environmental concerns, coupled with the renewal fuel standards are creating a market demand for renewable fuels and companies are under increasing pressure to reduce their carbon intensity levels.
Previously, we have not spent a lot of time talking about our technology as a biomass platform, so it is worth noting that U-GAS is a well-suited platform for biomass applications with a long history of biomass piloting and operations.
Last year, we entered into a license option agreement with a New York company who plans to build a biomass to DME project in Lackawanna, New York. We are actively investigating the feasibility of implementing our technology in conjunction with downstream technologies for conversion of biomass into fuels such as diesel, gasoline, and DME.
We believe our experience in biomass gasification, combine with our low cost technology and equipment delivery capability from China can enable alternative clean fuel projects to be competitive in the U.S.
Looking at all the opportunities in front of us right now, I’m excited about our prospects with regards to the licensing business. I look forward to sharing our progress with you throughout the year.
I’ll turn the call back over to Robert now.
Okay, thanks, Don. If we reflect on where our business was a year ago and compare it to where we are today, I believe you will see some notable changes.
A year-ago, we were responding to the global financial crisis. With the global economy constricting and causing energy and chemical projects to be deferred and without good access to the capital and debt markets, we chose to focus our resources on our China business by strengthening our operations at Hai Hua, preserving our cash and controlling our costs, closing the Yima Project and positioning our technology and business for future growth.
Today, we see our China projects, Yima and Hai Hua as the cornerstones of our business and we see China coal to energy value story as strongly as ever. In fact, as China continues to grow we expect new coal-based energy and chemical projects to be significantly advantaged using low cost coal such as those in China’s inner Mongolia region.
And we are one of very few, if not the only gasification technology that can cleanly and efficiently unlock the value in these low ranked coals.
Strategically, we’ll focus our efforts on the compelling low cost coal to energy and chemicals value proposition in China and through our technology, gain access into investments as well as technology, licensing and equipment sales opportunities.
In addition to China, Don will be leading our technology growth into new regions that are specifically well-suited to our technology capabilities, such as India, where we can unlock value in India’s challenging high ash coals for energy and chemical products and in Australia with its abundance of low rank coal combined with its need for secure clean fuels and power.
Also, we are expanding our scope from solely focusing only on low rank coals as a feedstock to including biomass and biomass coal blends for producing renewable energy and chemical products, which we believe may have a bright future in regions such as the U.S. and beyond.
Moving forward, we plan to provide technology solutions, including licensing, equipment sales, and technical services to customers in multiple regions and generating near-term business value in the process as well as creating the opportunity for selective investments.
As we grow our business, we remain keenly focused on conserving our funds while delivering our business to bring near-term revenues while creating long-term value. While there is still much work to be done, I’m excited and increasingly encouraged about the opportunities before us. I look forward to updating you on our progress in the future.
Before we end our call though, I’d like to bring your attention to our recent appointment of Mr. Ziwang Xu to our Board. Mr. Xu is Chairman of CXC Capital and of CXC’s China Sustainable Growth Fund. Mr. Xu was a partner and Head of China for Goldman Sachs. And prior to his service with Goldman Sachs, he was Head of China for Morgan Stanley.
We are very pleased and excited to have Mr. Xu join our Board of Directors and believe in his distinguished background, extensive experience in both investment and commercial banking in China and globally as well as his creative ideas, high energy level, and action orientation make him a valuable addition to our Board.
So with that concludes our management update and now we’d like to give the callers a chance to ask any questions. Chris, could you open the line?
(Operator instructions) And our first question comes from the line of David Begleiter with Deutsche Bank. Please go ahead.
David Begleiter – Deutsche Bank
Thank you. Robert, what do you forecast to be your cash burn rate in 2010?
Right now, two complement, our cash burn in 2010 in terms of our G&A is forecasted to be between about $10 million and $11 million and with our expansion of our Zaozhuang facility, that would end up probably impacting our cash burn rate in terms of total cash, to where we would be somewhere between potentially around $15 million or $16 million at the top, potentially less depending on how we enter into the construction phase of our expansion project.
David Begleiter – Deutsche Bank
And just on Yima, on the financing, do you expect to hear word in Q1 or perhaps later?
You mean Q1 of this year?
David Begleiter – Deutsche Bank
Calendar year. We expect it will either be late Q1 of this year or probably Q2.
David Begleiter – Deutsche Bank
And just on Yima, you said you expect significant progress in Q1. Can you be more specific about what type of construction progress you expect at Yima over the next three months?
Sure. Yima, they’re in the winter season there now and it’s a fairly cold location days, so they haven’t started the piling work. So what we’ll see as soon as the ground starts to thaw out there and coming into the spring, in March, which will be next month, they will start the piling and concrete foundation work. As we move into the summer, we’ll start seeing steel coming out of the ground for the structures. We’ll see a significant amount of progress with the construction of that project as soon as we get into the warmer months of this year.
David Begleiter – Deutsche Bank
And just lastly, Don, the licensing business, would you expect revenues in 2010 or beyond?
No, we’re already seeing some revenues from some of the work that we’re doing on PDP services, coal characterization tests, the work we’re doing with Coalworks and yes, we’d expect to see more revenue this calendar year.
David Begleiter – Deutsche Bank
(Operator instructions) And next we’ll go to the line of Jeff Zekauskas. Please go ahead.
Silka Koopf – JP Morgan
Yes, good afternoon. This is Silka Koopf for Jeff. A question on the Hai Hua expansion. In terms of the timing, do you have a rough timeframe as to when that may begin and when the expansion should conclude, when you begin to operate it? And I was also hoping to understand how the ownership of the expanded plant would work, meaning, if you contribute 95% of the ownership in the current plant, how do you split the ownership and the revenues and profits from the combined facility once its expanded? And I was also hoping whether you can discuss sort of the potential revenues and profits from the expanded plant? Is it simply 110 million pounds times the current ethylene glycol price of $0.27 or how does one think about that?
Okay, great. Let me try to hit each one of your points there. And first, let me just say that before I make some comments on that, our work is still a work-in-progress on the expansion, but I’ll give you the insights that we have right now into how we see the expansion projects shaping up. In terms of timing, it’s not set yet, but we would like to see ourselves move into locking things up and being able to move forward with that expansion by the middle part of this year. We think that’s doable. And in the discussions that we have ongoing, we haven’t really seen a fundamental reason to think that wouldn’t happen.
Now, in terms of timing overall to build out the expansion, we don’t have a definitive schedule on it yet, but in our own assessment of working through this with the engineering company we’ve been involved with, looks like it’s probably be about an 18-month effort, but again, that’s got to be confirmed later on to make sure that we’ve got that understood correctly. Now that doesn’t mean that our Hai Hua facility would be down for that much time because we don’t know exactly how we’ll approach it yet.
Again, this is a work-in-progress, but we would likely be able to do some of the construction around the operating facility and then try to kind of smartly tie things in with a minimal amount of disruption to our Hai Hua facility operations. That all has to be worked out. And that’s some of the implementation planning that I discussed on the phone.
In terms of ownership, the way that would work, to address your question, is that think of this as a new or restructured joint venture and we bring our existing assets into this. It remains to be seen what our portion of this project would be at the end of the day, but we’ll have a significant share by contributing our assets into the project versus the new equity that’s coming into the project as well.
In terms of the financial performance, we’ll be able to provide more details on that as we get into the future, but I will say a few comments that maybe helpful for you is that glycol today in China is one of these products that’s in pretty high demand because a lot of the glycol is imported in China.
Coal to chemical projects, depending on where they’re located in the cost of coal, can produce glycol anywhere from the RMB4000 per ton range to about RMB5500 per ton range on production cost. We see that the glycol market today is pretty much where it tends to historically run. It went through a dip last year, of course, with the economic situation, but it’s running at about RMB8500 today. We can give more guidance later on as we define the project. But that’s give you hopefully a high level view of how we would do that.
Silka Koopf – JP Morgan
Thank you. And if I can ask one follow-up question on the licensing, I guess I’ll just understand, how does one think about these licensing agreements? When you enter into one of these agreements, do you receive a one-time fee or do you also receive perhaps long-term royalties later on as a plant is constructed using U-GAS technology? Can you explain a little bit how that works? And I don’t know whether there is anyway you can put some numbers around as well.
Yes, I’ll explain the typical structure in our licensing transaction. There is a license agreement that’s signed and that is typically an upfront license fee, a portion will be paid at execution of the contract. Another significant payment will be made when the process design package is delivered to the licensee and then typically another payment at start up of the plant. So it’s usually three payments or four payments between execution of the contract and start-up of the project.
And I have seen in the licensing business, sometimes you’ll see a split where there is an upfront payment and also a running royalty over the life of the project, so it’s very project-specific. It’s not going to be the same in every deal, but typically I think what you will see is most of the payments are being made upfront before construction of the project is completed. That’s the way we would typically structure these projects.
And then there’s some other revenue that would come in, in addition to that. The process design package is done in-house by SES and we use our own resources to get those kinds of things done, so that’s another bucket of revenue for us. And then there’s typically some technical services and some training that go along as part of the whole license fee package.
The other thing we’ll be doing as part of the licensing business is bringing in some key equipment and I don’t want to go into too much detail on that because we’re still working out how we’re going to implement that strategy. But equipment supply would be part of the overall licensing package as well as some other services that we’ll bring to bear.
Silka Koopf – JP Morgan
And when you look at like what maybe an average licensing agreement that you enter into and you take new consideration of your upfront payment be, the payment you receive when the design package is delivered and the plant start-up, is it something that would be in the hundreds of thousands of dollars? Is it something that would be in the single million digit range? How does one think about? Just in ballpark terms.
Small project is going to be in the $1 million to $2 million range. A large project could be anywhere from $20 million to $30 million. I’ll tell you we’re looking at all kinds of different projects right now. We’re looking at some smaller ones; we’re looking at some big ones. But the really big ones have pretty substantial licensing fees.
Silka Koopf – JP Morgan
And small project would be sort of like similar to the size of the Hai Hua plant currently? Something like that?
Silka Koopf – JP Morgan
Thank you very much. That’s very helpful. I go back to queue.
I have no further questions at this time. Please continue.
Okay, well, great. Thanks, everybody then for joining us on the call today. We look forward to updating you on our progress at the end of this quarter. Thank you.
And ladies and gentlemen, this conference will be available for replay after 5:15 P.M. today Central time through midnight on Sunday, February 14th 2010. You may access AT&T replay system at anytime by dialing 1-800-475-6701 and entering the access code 144633. International participants dial 320-365-3844 with the access code 144633. Those numbers again are 1-800-475-6701 and 320-365-3844 with the access code 144633. That does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.
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