Consol, Synthesis Energy: Waste Coal is the Next Boom

Yesterday, Synthesis Energy Systems (SYMX) and Consol Energy (CNX) announced the successful completion of an engineering study for the delevopment of a gasification plant utizlizing SES's patented U-Gas technology and Consol Energy's waste coal as a feedstock to create valuable alternative energy chemicals like syngas and methanol.

Yesterday's news is a milestone. This study marks the beginning of the first gasification plant in the US of an industrial scale project. In the next several days, SES and Consol Energy will need to complete the front-end engineering design ("FEED") package for the project, negotiate a definitive joint venture agreement, and complete definitive offtake agreements.

What is the importance of the U-gas technology, you may ask? U-Gas can gasify a broad range of feedstocks, including low rank and waste coals. U-Gas also allows the gasification plants to operate at lower temperatures resulting in lower operating costs and less down-time. SES has a longterm procurement deal with Consol Energy and the good news is Consol is in no danger of running out of waste coal in our lifetime. Waste coal represents 30% of Consol's total coal mined annually, and until now waste coal hasn't had a tremendous value...obviously that's about to change.

Currently, SES owns and operates a plant in China that utilizes the U-Gas technology, along with two plants under development in China. SES's competitive environment is virtually non existent in the industrial space niche. Last week the company announced the hiring of the former head of Gasification/Chemicals of GE. Not too bad for a company that was formed in 2004.

SES picked up analyst coverage on 2/06/08 by Merriman Curhan Ford with a "Buy" rating and a $23-27 price target. Additionally, on 2/14/08 Johnson Rice & Co. picked up coverage as well, releasing their report with an "Outperform" rating and a 12 month target of $25/share. Having had talked to the analyst at MCF, he feels that if prices for methanol remain at the current rate per ton, his price targets maybe too low.

With coal prices rallying, all the "Best of Breed" coal/mining companies are breaking new highs. Look for Synthesis Energy Systems to participate in the rally.

Disclosure: Author has a long position in SYMX

Comments

[bilbo161:]

I was looking for a different play in coal gassification. Are there any others? Isn't Sassol going to do anything?

2008 Apr 24 04:01 PM

[X-15:]

China Shenhua Energy is a large Chinese coal company with 8 or 9 coal fired power plants on its' rail line -anyway they have spent 1.5 billion dollars (american) on a coal gasification plant. I have 250 shares of speculative money in it.

2008 Apr 25 12:58 AM

[VintonCounty:]

It sounds like U-Gas is better than sliced bread, but Wichman does not describe it or compare it to other gasification methods. He also does not explain what waste coal is and whether it currently has no value. Without that info, I suspect U-Gas is just a story to baffle politicians with bullshit.

2008 Apr 25 03:10 AM

[GMiki1:]

Silverado has a coal to liquid technology that has the support of the state of Mississippi. I'm long Silverado though it has definitely struggled.

I'm long CNX, which has waste coal. I was just looking to see if it has topped out, but now I don't think so with this technology. Also it owns most of CXG and nat gas is totally rising.

2008 May 16 11:20 AM

[ohm:]

Back in the 70's coal liquefaction pilot plants showed a jet could travel 20% further using their fuel. OPEC dropped their prices so we dropped our program. big boy sounds like a real jewel

2008 May 30 10:34 AM