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Synthesis Energy Systems Inc. (NASDAQ:SYMX)

Q3 2012 Earnings Conference Call

May 10, 2012 8:30 am ET

Executives

Robert Rigdon – President, Chief Executive Officer

Kevin Kelly – Chief Accounting Officer

Matt Haines – MBS Value Partners

Analysts

Robert Smith - Center for Performance Investing

Jay Steinhilber – Morgan Stanley Smith Barney LLC

Operator

Hello, and welcome to the Synthesis Energy Systems Third Quarter 2012 Earnings Call. You will be in a listen-only mode during the presentation. There will be an opportunity afterwards to ask questions. (Operator Instructions) This conference is being recorded.

I now would like to turn the call over to Matt Haines of MBS Value Partners. Please go ahead sir.

Matt Haines – MBS Value Partners

Good morning and thank you for joining Synthesis Energy Systems’ earnings conference call. Today, management will discuss financial results for the fiscal 2012 third quarter ended March 31, 2012, and will provide an update on corporate developments. Following management’s prepared remarks, we will open the line for questions.

Before we begin, I would like to remind you that during this call management will be making forward-looking statements within the meaning of Section 27(a) of the Securities Act of 1933 as amended and Section 21(e) 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 the Company believes that in making such forward-looking statements its 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. There can be no assurances that the assumptions upon which these statements are based will prove to have been correct.

In addition, in connection with the proposed ZJX/China Energy transaction, SES has filed a preliminary proxy statement and intends to file a definitive proxy statement with the SEC and intends to mail the definitive proxy statement to the stockholders of SES. SES and its directors and officers may be deemed to be participants in the solicitation of proxies from the stockholders of SES in connection with the transaction. Information about the transaction is set forth in the preliminary proxy statement filed, and will be set forth in the definitive proxy statement to be filed by SES with the SEC.

You may obtain the preliminary statement and, when available, the definitive proxy statement, for free by visiting EDGAR on the SEC website at www.sec.gov. Investors should read the definitive proxy statement carefully before making any voting or investment decision because that document will contain important information.

Please refer to the Company’s annual report on Form 10-K for the year ended June 30, 2011 for a further discussion on risk factors. SES’s 10-K and other SEC filings are available on the Security and Exchange Commission’s website at www.sec.gov or on the Company’s website at www.synthesisenergy.com.

And now, I’d like to turn the call over to Robert Rigdon, President and CEO. Robert?

Robert Rigdon

Thank you, Matt. Good morning and welcome to our third quarter fiscal year 2012 earnings call. With me on the call today is Kevin Kelly, our Chief Accounting Officer.

Over the past quarter, we’ve continued to work diligently to position the Company for significant revenue growth and profitability. We are focused on creating value through a combination of near-term revenue in earnings and long-term growth be a global business verticals and our new China business platform SES China. Over the next 12 months and beyond we’re well positioned to achieve our goals.

First, I’d like to turn the call over to Kevin for a review of our third quarter 2012 financial results.

Kevin Kelly

Thank you, Robert. Since late September 2011, we’ve kept the ZZ joint venture plant idle. As we’ve reported previously Hai Hua has not paid any of the capacity fees owed to the ZZ joint venture since April 2011 and we’ve not recognized any capacity fee revenues since then. For this reason we did not incur the normal operating cost associated with the ZZ plant or have any revenue from the plant during the quarter.

We continue to have discussions with Hai Hua, our joint venture partner, and we remain optimistic that a mutually beneficial joint venture agreement will be reached that can improve this plant’s financial performance. We intend to restart the plant when we complete the restructuring of the current business arrangement with Hai Hua to create integrated syngas to methanol operation.

We are working diligently on this restructuring. However, it is taking longer than expected due to a number of factors on the Hai Hua side, including our recent corporate restructuring of Hai Hua.

As a result, the third quarter of fiscal 2012 ended March 31, 2012 total revenue was a $100,000 versus $3.1 million for the third fiscal quarter of 2011. The amount of unrecognized capacity fees under the contract with Hai Hua totals approximately $3.6 million as of March 31st. And we are working to recover the value of these fees within the new commercial structure under development with Hai Hua.

Our operating cost decreased significantly due to the ZZ plant being idle and we continue to minimize expenses as much as possible.

Technology licensing and related services revenues for the three months ended March 31, 2012 were $100,000 versus $506,000 for the three months ended March 31, 2011. The change in licensing revenue was due mainly to timing of new orders and technology related services provided during the quarter.

The licensing revenue for the third quarter of fiscal 2012 relates primarily to coal testing for potential power projects in Turkey. Based on current pipeline and increasing levels of ventures in our technology, we believe this segments revenue will increase over time.

G&A expenses were 3.6 million for the third quarter of fiscal 2012 compared to $3.3 million for the third quarter of fiscal 2011. The increase was due primarily to non-recurring consulting related costs, which totaled $800,000 can relate to a settlement of a matter with a consulting firm and fees related to collecting funds from Hai Hua. Excluding these non-recurring costs, G&A decreased by 15%.

The operating loss for the third quarter was $4.8 million compared to an operating loss of 3.6 million for the third quarter of fiscal 2011. The increase in operating loss was primarily due to the increase in consulting related costs and the decreases in technology licensing and the ZZ JV plants revenue.

The net loss attributable to stockholders for the third quarter of fiscal 2012 was $5.4 million or $0.11 per share versus a net loss of 3.6 million or $0.07 per share for the prior-year second quarter – third quarter [rather, it’s right]. At March 31, 2012, the Company had cash and cash equivalents of $19.8 million and working capital of $13.1 million.

Now, I will turn the call back over to Robert.

Robert Rigdon

Okay. Thanks, Kevin. In many ways the past quarter has been very encouraging for our Company, despite the lower revenues related to Hai Hua’s delays in restructuring the ZZ joint venture.

I’d like to highlight several of our key accomplishments for the quarter, that give us this encouragement. First though, I want to point out a few market trends. We’ve seen several quarters now our global oil prices have remained over $100 a barrel, with global gasoline prices at near record highs.

LNG prices in Asia continue to rise and are now on the order of $15 to $16 per million Btu. We were able to produce gasoline from low cost, low quality coal for approximately $1.75 to $2 a gallon in the U.S. and an LNG alternative for approximately $4 to $5 per million Btu in Asia.

We believe these energy trends greatly favor our technology and they’re expected to continue for the long-term. Against this backdrop, we’re seeing a noticeable increase in interest from potential customers and strategic partners in our Company and our technology offering. With this increased interest we’ve been taking steps over the past quarter to position our self to secure important commercial business arrangements that will bring near and long-term value to our shareholders.

In order to better position our China business for growth, we’re combining our operations there into a single SES China business platform. This includes our Zao Zhuang joint venture plant, which has demonstrated our technical excellence over the last four years and our Yima project. Our Yima project remains on schedule, to start up this summer. Once this project is operating at steady state, we believe, we will be showcasing a very large scale commercial operation of our technology on low quality coal, with the capability of generating significant revenues.

I expect that SES China will build on the success of both Yima and ZZ to be better able to raise the capital necessary in China to fund its continued growth and sustainability. As many of you may have read in our recent announcements, we’ve engaged a senior leadership team through Crystal Vision Energy or CVE, whose principals we’ve known for many years. The Executive Chairman of CVE is Mr. Colin Tam, who has been named the Managing Director of SES China reporting to myself and the SES Board of Directors.

Our goal and objective for SES China is to carry forward with our capital-lite business strategy focused on key business verticals and to capitalize this platform through raising subsidiary level funds necessary to accomplish this. Mr. Tam and our China team will be heavily focused on the successful start up and commercial operation of our Yima project this summer as well.

Across the term of the engagement with CVE through the end of 2012, we will secure a permanent SES China CEO. We’ve structured the CVE arrangement to align the interest of CVE with a long-term growth and value creation of SES in our China business. And we anticipate Mr. Tam’s continued involvement in guiding SES China for many years.

Now, I’d like to discuss our capital-lite business approach for the projects we’re actively working on with potential customers. For SES capital-lite entails maximizing the value created through our technology offerings, while minimizing equity investments. We aim to provide a complete product offering that includes technology equipment and fully engineered plant designs, even at times partnering on constructions to provide turnkey plant solutions. That would be transferred to the owners at start up for our customers. In many cases we envision SES to continue to provide technical and operating services for the life of the projects.

And currently we’re actively pursuing three business verticals that align our capital-lite approach where our technology is specifically well suited in the segments of transportation fuels, steel, and fertilizers. We believe the formation of these business vertical partnerships will provide near-term earnings through technology access space and long-term growth through the supply of the technology product.

Our most progressed business vertical is the recently announced cooperation agreement with Zhonghuan Engineering Company, which I will refer to as ZEP, currently underway in China. Together with ZEP we see an immediate business opportunity to replace old and dirty gas suppliers that require expensive coal with our clean lower cost gas suppliers which use low cost coal.

We believe that on average one of these retrofit projects will result in about $20 million to $35 million of total revenue with attractive profit margins. Our gasifier will typically replace five of these old generation gasifiers, which yield’s the total available market of about 700 gasifiers in China. Even with modest market penetration the revenues to us can be substantial and will occur over a multi-year period.

Our existing technology licensing business also fits very nicely into our capital-lite business strategy. Our pipeline of prospects is increasing in numbers and in quality. Our total licensing orders pipeline of the next 12 to 18 months can generate substantial revenue from what we believe are viable and well developed prospects. Based on our business model, we would expect a portion of the revenues to be realized in the near-term and the remainder would be realized over the three to five year project development in construction cycle. How customers ultimately progress their projects will determine how much of this order value potential both near and long-term we will eventually realize. The trend is very clear, the value of our licensing order pipeline is increasing and it’s global in nature.

Another key business vertical is our SES Resources Solutions joint venture, know as SRS. SRS’s primary focus is to acquire ownership positions in low quality coal resources that can then be used as a fuel feedstock for high-value products such as SNG and projects using our technology and to facilitate the development of these projects with industry partners and regions where gas prices are based on expensive LNG.

Having low cost, low quality coal at our disposal enables us to further leverage our technology process and to more vertically integrated opportunities with high profit potential. And through SRS we’re progressing on our joint study agreement with Ncondezi designed to further validate the commercialization potential of these low volatile coal resources for export into SNG solutions for LNG dependant economies in the Asia Pacific region.

SRS is also engaged in several other commercial discussions related to securing coal resources and for the early phase funding required for the joint venture to further develop the business; a business model that is being well received by potential customers and strategic partners.

Now, I want to cover a few more specifics related to our China activities. First, as announced in early April, we’re continuing to negotiate with the ZJX China Energy Group on our previously reported share purchase agreement. We agreed jointly with ZJX to keep our share purchase agreement in effect as long as the parties were making good progress towards meeting the objective of completing our agreement in a reasonable amount of time. Due to the sensitive nature of the discussions underway and the non-disclosure obligations we have, I cannot provide anymore details at this time other than to assure our shareholders that the discussions remain active and are progressing and we will provide more information when possible.

Now, I’d like to provide a more detailed update on our ZZ joint venture project. We’ve chosen not to operate the ZZ plant for Hai Hua without reliable assurance that the capacity fees would be paid. At the same time we identified our means and substantially negotiated a path by which we can improve the financial performance of ZZ and Hai Hua such that both our joint venture and Hai Hua would enjoy a cash positive operation producing methanol at the site. We’ve yet to close this definitive agreement with Hai Hua primarily due to a recent development whereby 50% of the Hai Hua Company is now being acquired by another Chinese state-owned enterprise.

Hai Hua has informed us that they aim to close the new definitive agreement with us within the next two months after the investment by that state-owned company is concluded, and just this week Hai Hua has reaffirmed their commitment to complete the definitive agreement in the two month timeframe through a signed memorandum of understanding with us.

In summary, we believe we're evolving the company’s strategy and approach in a very productive manner that would allow us to grow more rapidly. Our capital-lite business approach that leverages our technology in combination with industry partners and specific business verticals has large value creation potential while minimizing capital from SES. Our formation of the SES China business platform that we believe will grow to stand on its own further improves our prospects in China and we are accelerating those prospects being engaged with very experienced team at CVE under Mr. Tam’s leadership.

We also believe that our ongoing commercial discussions with industry partners and specific business verticals will bare results this year providing a combination of funds and near-term revenues. And it’s our view that the current market dynamics in the energy landscape are particularly well timed for SES. Our technology removes the long standing technical barrier to monetizing the world’s lowest quality coals which has the potential to produce large value in such coal resource ownership.

Based on our unmatched technology buyable business opportunities and experienced leadership team we believe that we’re well on our way to becoming a formidable and profitable gasification technology company, creating significant value for our shareholders.

So with that, I’d like to open up the call for questions. Operator?

Question-and-Answer Session

Operator

We will now begin the question-and-answer session. (Operator Instructions) At this time we will pause momentarily to assemble our roster. The first question is from Robert Smith, Center for Performance Investing. Please go ahead.

Robert Smith - Center for Performance Investing

Thanks for taking my call, good morning here. With the creation of CVE, it seems that there’s been another layer put on so to speak at least in the way I see it Robert, and I am wondering if you can give me some clarity as to what this does to your ownership position.

Robert Rigdon

Oh, okay. Hi, well good morning Robert, and I’ll be happy to answer that. CVE and the engagement of CVE is strictly as a management leadership service for us in our China business. There is no ownership confusion here with SES China. They have – they will be working to support us, Mr. Tam in particular, as the Managing Director of our SES China business.

And the SES China business will be an SES business wholly owned by SES and would only have other owners in it to the extent that we may bring funding into that subsidiary level. So there should not be any thinking that to confuse CVE with any ownership of the SES China business, it’s a management assistance that we needed from the very experienced team there under Mr. Tam’s leadership.

Robert Smith - Center for Performance Investing

So what is the agreement, I mean, in with respect to sharing I mean.

Robert Rigdon

Well, essentially it looks – I can’t go into lot of the details on it Robert, but I would give you the gist of it, because it’s very much like an executive compensation agreement with them, where there will be a compensation fee as well as some incentives to align them with the long-term interest of the Company not only in China, but SES the Corporation. It’s not a dividing up of our business with CVE in anyway whatsoever.

Robert Smith - Center for Performance Investing

Could you give me some ideas to the ballpark, I mean, are you going to still – what Crystal Vision gets from this?

Robert Rigdon

Well, what Crystal Vision will get from this is that we will cover their salary cost for the remainder of the year, for the engagement of Mr. Tam into our business as well as based on their successful establishment of goals and objectives that we have at SES China, they will be given incentives in terms of normal sort of success fee type incentives in terms of establishing and raising funds at the necessary subsidiary level, the type of thing that you would normally expect to see with the type of an executive contract. They have no – there’s no ownership issue …

Robert Smith - Center for Performance Investing

Yeah, I understand that Robert, but I am not that familiar with such a contract, so I understand it is …

Robert Rigdon

Well, Bob its – these are very similar to how executives are incentivized in the company, I can’t go into the details because these are – it’s bound by confidentiality between us and CVE at the current time. So – but what I can tell you that, the best way to look at CVE is like a executive level type of a CEO assisting us here for our SES China business and getting it set up and getting it capitalized at the subsidiary level, that’s their mission.

Robert Smith - Center for Performance Investing

Okay, all right. So, the comment about the ammonia retrofit business, so I see that you essentially have done a division so to speak of -- 3500 divided by 5 I think it’s 700, so are we talking about a total market opportunity of $14 billion to $24 billion, I mean is that – when you say or even if you get a really very small percentage of that, its still a very major opportunity, but is that the total market that we’re talking about in the ammonia?

Robert Rigdon

Yes, you have it right. None of us expect that all of those plants will be converted, but the …

Robert Smith - Center for Performance Investing

Yeah, of course.

Robert Rigdon

… I think the take away you’re exactly correct, Robert, is that it’s a very huge potential because in China they have built an enormous amount of these old gasifiers many years ago and now the Chinese have – and that’s a fact for some time, they have been wanting to replace those. We are in a unique position here with Zhonghuan Engineering to do that because the replacement of those and the path always still involved pretty high cost coal.

Now we can come in with a low cost capital solution as well as allowing them to refuel these to lower cost coal. So for these projects they get to solve two problems. One, is they get to solve the problem of being dirty and polluting which has been part of the concern over there in China for a number of years now, but secondarily more recently they get to solve the very pressing economic problem that the coal they run is incredibly expensive.

So this is why we feel so hopeful about this particular arrangement with ZEP. So with even a modest market penetration and we’re already working on our proposals for our first two customers now with ZEP. With modest market penetration here, this can be quite a big contributor to our business and it’s an example Robert, just to add on to this, of what – how we see ourselves focusing a little bit more strategically on a business vertical such as this where we can focus our resources and not delude ourselves too much on a lot of different activities.

Robert Smith - Center for Performance Investing

So over the next three years, I mean, what would be a modest penetration, in your point?

Robert Rigdon

Well, let’s say, we even penetrate the market 5% to 10%. That would be – I’d consider that modest and that would behave in – look at math there, it’s pretty significant.

Robert Smith - Center for Performance Investing

And is that possibly doable over a three-year period of time?

Robert Rigdon

I think as long as we get our first couple of projects up and going, then there will be a – the potential here we discussed with ZEP for follow-on interest from the industry because the Chinese industries tend to like to go with what’s been done before. [Nobody] has really attempted this retrofit business there in the past. We’ve got the right product for today.

So based on the behavior of Chinese industry in the past, I’d be very hopeful that what we’d see is a pretty active and I know ZEP, the Chinese Engineering Company out of Beijing that we’re working with has expressed this view to us. This is their view as well. But there will be a lot of follow-on after these first couple of orders are secured.

Robert Smith - Center for Performance Investing

And with respect to ZJX in China LNG, is there any way to put a timeline on what your expectations are to close this?

Robert Rigdon

Well, I can’t right now, I can tell you just what I’ve said in my comments a moment ago that we’d not have continued the agreement if the discussions were not very active on a weekly basis and are ongoing. But I can’t give you a definitive timeline until we get closer to getting it all wrapped up and get it done, then, we’ll be able to come out and give everybody the details.

Robert Smith - Center for Performance Investing

Calendar 2012?

Robert Rigdon

I’d say, Robert, look in 2012, you did see there – we either are going to do this or we’re not because the whole point of this extension was that we’ll get this done in a reasonable amount of time. And I think, if sending this beyond 2012, in my view is not a reasonable amount of time.

Robert Smith - Center for Performance Investing

Okay, that’s – I welcome that. So and the last point is that, you say you’ve developed a very robust pipeline of licensing projects and there are five well developed projects, I was wondering if you could simply go over them?

Robert Rigdon

Yes, I can. I won’t be able to give the names, but I can give you the regions and a little bit of specifics around them. We’ve seen some very, very interesting here over the last couple of quarters, frankly, in what’s been going on with the energy prices and how it drives our business, and also in coal, with coal being very expensive. And we’re seeing coal becoming really in demand in Asia with a tendency to try to drive it to lower quality coals, but there’s been a technology barrier.

So for example, the steel industry is very interested in having a – and so, part of our discussions, the five that we just discussed here are related to the steel industry, where the steel industry is very interested in having the new style DRI type steel plants capable of running low cost coal feedstocks because of the Asian environment is so expensive or restricted on natural gas. And that’s driving a lot of activity and discussions with potential strategic partners with us in the steel industry as well as straight up license opportunities in areas like India, in particular. India is a big growth area for steel. So, there is quite a bit of activity on our parts in India on the steel side. So that’s one.

The other is that we’re seeing a renewed interest as you probably can imagine here in the U.S, which we haven’t seen since the financial crisis started a few years ago, where the oil prices and the pressure on gasoline prices are refueling interest in producing fuels here in the U.S. And we haven’t been active in the U.S. in probably over three years since our CONSOL project, but now there are significant – there are two very significant projects under discussions now in the U.S. that have the potential to provide products that are alternative to this high price oils from low quality coal and coal waste. That’s the big differentiator that we bring. So, it allows us to make these fuels such as gasoline at such a low cost. So that’s another example …

Robert Smith - Center for Performance Investing

Even with the low cost of natural gas?

Robert Rigdon

Well, see the products of fuels; oil-based things like gasoline are not derived from natural gas. So natural gas is not a player …

Robert Smith - Center for Performance Investing

Okay, methanol. Thanks.

Robert Rigdon

Yeah, exactly. Now then the last thing that I’d mention to answer your question is that I had discussed probably over a year-ago and we’ve been slowly progressing this. The work that we’re doing in Turkey that Kevin mentioned where we just have been in the process of doing some study and coal testing work is really related to a small scale, very low cost, low quality coal power plant application that we’ve been looking at now for over a year in conjunction with potential – other industry partners both in the power generation side and the utility side in that region, and that’s just beginning to pickup and accelerate again as well as those economies are strengthening. This is really something that is more relevant for emerging and developing economies that need small scale, not large scale, very, very clean power from their indigenous cheap low quality coals.

So those are three key examples of the type of segments. And then there are multiple projects. The five projects that I mentioned on the call are five most well developed, from a business point of view, but our pipeline has a number – I don’t even know how much is on it now, it’s probably well over 20 prospects, but these five are almost well developed.

Robert Smith - Center for Performance Investing

Has Mr. Oppenheimer made some progress in his …?

Robert Rigdon

Yes, he has. Actually he has, but part of it is, this Ncondezi, we’re doing this study for Ncondezi now that we signed here two or three months ago, I guess it was. And we’re in the process of doing that and coal testing related to their big mining operations in Mozambique. He has also made quite a bit of progress with a number of coal resource owners in Australia and in Indonesia. And he and the team there have been very actively out working to secure the development funds for the first phase of their projects. So with – we’re very pleased right now with the progress Mike is making, and I’m hopeful to have some good news on that front here, maybe in the next couple of quarters.

Robert Smith - Center for Performance Investing

Okay. And just finally, Robert, do you think you can bring this forward enough to preclude they going to the financing market?

Robert Rigdon

We’re doing everything we can to accomplish it in that fashion, Robert. That’s one reason why we’re focusing on the SES China platform. We saw the opportunity there to -- and the interest, we didn’t just form SES China, for example, without having tested quite well with potential parties that may want to invest in that platform.

So, our goal is to bring in and raise funds at subsidiary levels, work through partnerships in these business verticals. And then we’d just keep our eye on the market, this isn’t an opportunity time for us to raise funds generally at the parent level, but at the end of the day we’ll do what we think is the right thing to do for the business.

Robert Smith - Center for Performance Investing

Okay. Thanks so much. Good luck.

Operator

Our next question comes from Jay Steinhilber from Morgan Stanley Smith & Barney. Please go ahead.

Jay Steinhilber – Morgan Stanley Smith Barney LLC

Yeah, hi, my question was just answered, it was with regards to the financing, whether we’re going to have to raise capital and so forth. And it sounds like you just took care of that question a second ago. So, thank you very much.

Robert Rigdon

Okay. Thank you, Jay. Thanks for joining.

Operator

(Operator Instructions) We’ve a question from [Steve Begleiter] from Private – he is a Private Investor.

Unidentified Analyst

(Indiscernible), this is [Steve Begleiter]. Thanks for taking my call. I want to follow-up on that capital raise question, if I understand the press release right, you ended the quarter with $30 million in change of working capital, and in the quarter we had a loss – you had a loss of over $4 million. With no revenues from the JV plant because that – whoever you’re [pronouncing] they decided not to pay you. With your licensing fee somewhat going from $500,000 to $100,000, with Yima maybe coming out in the summer, but the way you word it, it will be a big contributor when it’s fully operational. I don’t know when that is. Are you around the risk of running out of money this year, and if you’re relying solely on the ZJX thing to close? I do deals for a living, so I’ve never seen a deal take a year to close, please tell us what your Plan B is to get funds into the Company because you obviously loose a lot of leverage to lower your cash balance goes?

I’ve a lot of examples of other companies trying to do business in China and they suffer this sort of death by a thousand cuts of quite delay and delay and delay a year, we’re going to do it and pretty loose all leverage and they sort of kept the deal for a much better pricing, one can you (indiscernible) as you’re not a victim of that, and two, please tell us what your Plan B is to get money in the Company so that you’re able to develop or create opportunities to provision, and so it looks like you go out of cash by the end of the year if nothing changes.

Robert Rigdon

Okay. That’s a very good question, Steve. And I appreciate you asking it. So let me give you my view on this. First off, the opportunities here over the next couple of quarters to bring in money we see through the formation of SES China, and we’re in active discussions regarding our ability to fund that platform.

Secondly, as you mentioned, the Yima project coming online this summer and if all goes well and stays on schedule, we’ll be producing methanol by the fall. That has the potential to start throwing off a significant amount of cash if all goes well. The restructuring of Zao Zhuang, our current joint venture in this timeframe, which we’ve –this has been a delay as we mentioned, but we do believe that we’re going to get this thing closed. That ends up coming back into the picture producing financial results for the Company.

Also, as I mentioned in my comments earlier, these business verticals that we’re working around, coal-to-liquids and steel and ammonia, such as the CEP business vertical also all have the potential in this timeframe to throw off technology type of access fees in the formation of partnerships to support these business verticals.

Now, that – and all of that is being – that is part of our – a big part of our focus to bring in funds without going into – it’s a general capital raise at the parent level. In addition to that, we’ve the active discussions with ZJX, unlike you said, I truly do understand the comment about death by thousand cuts and I believe that we’re on the right track particularly in China now with bringing in folks like Mr. Tam who has a long track record of successful project development, financing, funding numbers of projects in China. He is probably one of the most successful ones we know in this industry segment.

Unverified Speaker

Is he working on this ZJX financing?

Robert Rigdon

Yes. He is involved in that now too. So – because he is our Managing Director now in China, so he is right in the middle of it. But as a Plan B, at the end of the day as I said, we’ve a number of avenues here that can help and if any one of these connect and we do believe that more than one will, obviously, we’ve got our Yima project and Zao Zhuang, which are major investments that will be producing revenues.

But that said, if there is any timing issue, the Plan B will have to do the right thing for the Company and we’ll. So we’ll not let ourselves run out of money. There is – we’ve got, I think, a very robust approach to getting the Company funded in a way that’s best for the shareholders.

Unidentified Analyst

Can you give – at least maybe you’ve discussed in the past, just to refresh, is my understanding of the revenue potential of Yima, is when I bought – for your shares, I believe you owned a much higher percentage of the project than you own now? I think you own around 25%?

Robert Rigdon

That’s right. We chose – you’re right, Steve. We chose to invest at a 25% level in Yima back in 2009 versus – in the early days we had – doing a 49%. So we’re 25% of that project, Yima is 75% of project. Now let me just give you a quick – some numbers here. The Yima project is – will ramp up to 300,000 tons per year of methanol production. That’s its main play. And the current pricing of methanol today in China, the average pricing is about, Chinese RMB 2700 per ton. Today its running about RMB 2900 per ton, it’s tending to trend up. It has since the financial crisis has been slowly trending back up, so it’s got pretty healthy methanol prices today. Based on that, the simple math that for our total project generates revenue somewhere between $125 million to $130 million per year. So that’s the revenue potential.

Production cost, and we’ve been very public in our Investor Presentations about our ability to produce methanol in China from these lower quality coals, it depends on the price of coal and power, but typically would be in the range of somewhere around RMB 1800 to RMB 2000 per ton. So that’s about the best guidance I can give right now on the Yima project and as you can see it can be a significant contributor to the Company when it’s up and fully operational.

Unidentified Analyst

Yeah, but will we get up and – when does up and fully, you understand my point right? Its starts in summer, up and fully operational might be 2016, that doesn’t give the cash flow to survive the j-curve till you get there.

Robert Rigdon

So let me put that in perspective Steve, typically in China these projects are up and fully operational within six months, many times before six months.

Unidentified Analyst

Okay, that’s helpful. And – I respect the fact that you can't talk about the ZJX thing, but the other respective fact I got to ask, I have been a very significant shareholder for a very long time. And I actually worked for a company where I was responsible for doing a joint venture in China. We had our commitment for them to invest a lot of money in our company and it never closed. And I at some point in time just turned against it, told our CEO that he was very committed to it for a whole variety of reasons and we bought in a different team of people to work, that still never closed. And one of the problems we had was that, there was this constant changing of what the approval process was, okay. I had to get approval from – I kept asking, what’s the process? Who has to approve it? And every time we actually got somebody to answer the question it was somebody else.

So could you at least please tell us, I mean, I can’t imagine there’s any questions after almost a year on the financial terms of the investment, okay. Or even if I want to change the price, I mean you got to agree or disagree at some point in time. I would suspect this is related to the approval process. And could you please tell us which entities, are they regional, are they government, are they federal, who has to approve it? How many of them are there? How many have you got, and how many are left, if that’s correct, or are you almost – can they just do this on their own and you’re still arm-wrestling over terms. Where do they (indiscernible) have the money, like what’s the issue, like how does it take a year?

Robert Rigdon

Yeah, okay. I will try – I will do what I can to the extend that I can talk about it. I think your example is not uncommon in China. We’ve been there for a number of years now. The approval process on this deal I believe is well understood with the approvals required at the provincial and government level for the deal. The time is been taken primarily around the inclusion of the other party that is bringing in the much of the necessary funds and potential new projects related to the China business in this deal. And getting that sorted out and the commitments to the – our ability to do projects with them as well as getting sorted out – sort of the terms associated with combining them and with the ZJX deal is what’s been taking the extra time. I can’t say a lot more about it in that.

Unidentified Analyst

Are you negotiating with the party who has the committed, who has the money to close or you …

Robert Rigdon

Yes.

Unidentified Analyst

… negotiating with the party who wants to raise the money to close?

Robert Rigdon

We are negotiating with the party now that has the money to close. So money is not an issue here on that. So …

Unidentified Analyst

It’s the other – it’s the pipeline of other projects, they’re suppose to materialize?

Robert Rigdon

I think – yeah, it’s getting the – its getting them, coming in and having that – there insertion into that come in a way that’s acceptable to all three parties. And that’s where we’re making progress on.

Unidentified Analyst

Okay. Well, I’d just encourage you to [assume that isn’t] going to happen, if it doesn’t happen by now and think about how to finance the Company. It just sounds like they can wait too long for it to be credible. And I feel – I’m a very [little] shareholder, I own probably way too much of the stock and I had some very high bitten experience in China and there is a lot of people who represent a lot of things, as I’m sure you know, okay. And they don’t come through and it’s like – it just feels like we’re going to (indiscernible) and that stuff will show up the day after we run out of money.

Robert Rigdon

Yeah. I hear you. Well, I think that’s wise advice – we – I believe that we’ve got things balanced with the other opportunities we have to bring funds into the Company as well. So if we believe at one-point that this is not progressing well, then we will turn it off. But that’s not the way we see it today.

Unidentified Analyst

Okay. And is there any – final question on this point, is there any minimum level of cash with the parent company were you hit, like in case of a [line] break glass, will you say okay, no matter what else is pending we have to raise money. Is that a $10 million, is that a $5 million, is that never like it is the Board discuss that?

Robert Rigdon

Steve, we are keeping an eye on that and we’re going to make here, we’re prepared to raise funds if necessary. I can’t go out to specific number, a (indiscernible), but we’re well verse with the situation, we’re monitoring it regularly and we’re doing our best to make sure that we don’t get into a liquidity issue down the road.

Unidentified Analyst

Thank you.

Operator

This concludes our question-and-answer session. I would now like to turn the conference back over to Robert Rigdon for closing remarks.

Robert Rigdon

Okay. Thank you, operator and thank you everybody for tying in on the call and for those that asked the questions. I will just say that we will be continuing to work diligently on these initiatives and we will be looking forward to giving you an update here in the future. Have a good day.

Operator

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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