This morning’s announcement follows the granting of a state government licence last week allowing access for Adelaide-based NeuRizer to use a network of offices, sheds and warehouses at the former Leigh Creek mine site for the life of the project.
The $14.4 million investment (US$10 million) from DL E&C is a major coup for NeuRizer as it progresses the front-end engineering design (FEED) stage of the $2.6 billion project.
The listed company, formerly known as Leigh Creek Energy, already has significant Korean involvement.
Last year it awarded the Engineering, Procurement, Construction, Commissioning and Finance contract for the project to DL E&C Co. It also signed a heads of agreement deal with Daelim, a sister company of DL E&C, for 500,000 tonnes of urea a year.
The offtake contract is hoped to be finalised within weeks.
The project has also received a letter of support from a major Korean bank for debt finance of up to $1.5 billion or 70 per cent of the turnkey price of the DL E&C construction contract.
It aims to become the largest underground coal gasification site in Australia and a globally significant producer of nitrogen-based fertiliser for agriculture.
The project, 550km north of Adelaide, will use unconventional technology to extract syngas from beneath the ground at the former coalfield.
Syngas is a mixture of carbon monoxide, carbon dioxide, methane, hydrogen and other elements.
Construction of stage 1 of the project is expected to begin next month and includes connecting the generators to underground gasification wells.
The turbines will generate 5MW of electricity to demonstrate the commercial scale of the technology.
A Bankable Feasibility Study for the much larger stage 2 is expected early next year with a final investment decision (FID) and construction potentially coming soon after.
Managing Director Phil Staveley welcomed DL E&C’s long-term commitment to the project and to the company.
“DL E&C is a critical project partner in terms of scoping and development and DL E&C’s eagerness to participate in the significant value created by NeuRizer upon construction completion of the NeuRizer Urea Project,” he said in a statement to the ASX this morning.
“This is a long-term value investment and not one with a short-term time horizon.”
The leasing of the government buildings includes a fully serviced 1040sq m administration building with office space for about 70 workers.
Two major 3120sq m warehouses with gantry cranes, several other smaller sheds and an extensive network of groundwater monitoring and production wells.
The deal is expected to save the company up to $70 million in capital costs.
Staveley said the clever reuse of existing infrastructure and feedstock would save money and time.
“We’re grateful for the continued support of the newly elected state government and its agencies in progressing this project of national significance,” he said.
“The granting of use of the existing infrastructure on site by the South Australian Government not only leads to great cost and time efficiencies in our construction schedule but also sits directly in line with our mission to minimize our carbon footprint.”
The project aims to create 1200 jobs with about 1000 of those on site. The former coal mine, which ceased operation in 2015, is serviced by a 250km rail line to Port Augusta.
The rail line was previously used to haul coal from the site to the coal-fired Playford power station.
Making urea from gas is a three-step process: Sourcing the gas; converting it to ammonia (NH3) and then adding carbon dioxide to the ammonia to make urea.
The granulated urea is expected to be exported and distributed domestically for agriculture and industrial use.
The price of urea fertiliser has skyrocketed to about $1600 a tonne in the past year or so due to a number of factors including the war in Ukraine.
NeuRizer head of investor relations and corporate affairs Tony Lawry said the Leigh Creek project could keep its production costs down because it controlled three of the four major cost inputs: gas; carbon dioxide; and electricity.
He said the introduction of local manufacturing would provide certainty to Australian farmers.
“When I talk to Australian farmers they are very concerned about the security of key agricultural inputs such as urea fertiliser,” Lawry said.
“Once we are producing urea in Australia it strengthens that supply chain.”
The DL E&C share placement will raise US$10 million at 15 cents per share. NeuRizer’s share price was up about 10 per cent following this morning’s announcement to $0.17 at 11.30am.
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