Leigh Creek Energy shares jump 29.7% on offtake agreement with Daelim
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Leigh Creek Energy (ASX:LCK) shares surged 29.7% and reached a high of 19 cents yesterday after entering into a heads of agreement with South Korea-based Daelim Co Ltd for an offtake of a minimum of 500,000 metric tonnes of granular urea per year for a minimum of five years.
Executives of LCK travelled to Korea as soon as the travel border restrictions were lifted to meet with Daelim and discuss the EPCC contract, the offtake agreement, and a future strategic partnership.
As a result, Leigh Creek said it was pleased the two parties came to an agreement on the way forward in a company-defining offtake agreement and more importantly, the first and last offtake agreement needed to execute its component of funding for the project.
The purpose of the HOA is for LCK and Daelim to work exclusively to finalise the detailed terms of the offtake agreement, which expires in June 2022 (if no agreement has been reached prior).
Managing director Phil Staveley said this move, along with the bankable feasibility study currently being prepared, gives LCK the tools to engage with financial investors and lenders.
“It also provides the certainty required to develop our marketing plans, which will lead to lower priced urea for Australian farmers,” he said.
Early next year the company intends to announce its marketing plan for total production, which will include this agreement.
“It will also include a new low-cost urea distribution to the Australian market,” the company highlighted.
The South Australian-based company is developing the Leigh Creek Urea Project (LCUP) to produce low-cost, nitrogen-based fertiliser for local and export agriculture markets.
While the project will be developed in two stages, it’s set to initially produce 1Mtpa with the potential to increase to 2Mtpa of urea.
The first stage consists of the construction of gasification wells to provide energy (syngas) for the project and 5MW of gas-fired power generation.
Stage 2 will involve the expansion of gasification fields, 100MW of gas fired power generation, an ammonia facility, urea facility, as well as the logistics, loading, and transport.
LCK says the project will be carbon neutral from 2022 and will provide long term economic development and employment opportunities for the communities of the Upper Spencer Gulf region, northern Flinders Ranges and South Australia.
When the pre-feasibility study was completed, LCK said urea prices in Australia were $489 per tonne – now they are more than $1,300 per tonne.
“Whilst it is difficult to forecast future urea prices, all the indicators show that prices will remain high (if not as high as current prices),” the company said.
“Many urea plants in Europe are now in care and maintenance because of a shortage of gas and high prices.
“Gas prices in Asia have increased dramatically over the last year while China has stopped exporting urea and finally, Henry Hub gas prices in the United States are also close to record highs.”