IT WAS pure gold, the best first line to a telephone conversation in years. This week we called Stewart Elliott, the Hong Kong-based chairman, managing director and chief executive of Energy World Corporation.
”What have I done?” asked Stewart. How does a reporter respond to that? There is only one comeback. ”What do you think you’ve done?”
We had called Stewart to inquire as to the whereabouts of a liquefied natural gas (LNG) plant. An LNG plant is not an easy thing to hide; it’s no missing sock or set of car keys. But somehow, in a feat worthy of David Copperfield, Energy World had managed to make a liquefaction facility vanish into thin air.
Stewart was helpful. He happily fielded all sorts of annoying questions about this mystery LNG plant, make that ”plants”, plural, although some nagging doubts remain as to whether these ”objets mysterieux” will ever materialise in the physical realm.
You see, Energy World – which the market values at $1.5 billion, and is domiciled in leafy suburban Seaforth in Sydney but run out of Hong Kong – has raised a lot of money to build its plants.
In 1997, via stockbroker Tricom Securities, it raised $100 million at 50¢ a share. ”The funds will be used to finance the construction of an LNG plant, LNG terminal and power plant expansion,” said the press release.
In a letter to shareholders of August 2007 the size of the project had grown to 2 million tonnes of LNG a year.
By November 16 that year, it wasn’t a case of ”going to build”; rather ”EWC is building” the plant in Indonesia – where, incidentally, it does own an old power station that produces income.
And by May 2008, Energy World had returned to the trusty Tricom to raise another $156 million from retail clients.
”The funds will be used to finance the construction of an additional 1 million-tonne LNG plant and related gasfield development in Indonesia,” said the ASX announcement. Was this a newie, anotherie, or the same LNG plant as before?
Energy World raised money again this year, from none other than Richard Chandler, to build an LNG plant.
Chandler is the Kiwi-born billionaire and ”deep value investor” who was just about to recapitalise Gunns timber. He was also the top shareholder in celebrated China stock fraud Sino-Forests.
Chandler tipped in $86.5 million in a placement to Energy World last year and bought a few more shares on market to move to 18 per cent.
He’s not the first big-name investor. James Packer’s hedge fund, Ellerston, made a killing on the stock by taking a placement in 2006 when the shares were trading in single digits, then exiting three years later at north of 40¢ a share.
For the Packer crew, it was a classic case of ”buy the rumour, sell the mystery”. For it was in 2009, the year Ellerston bailed, that ”All major equipment” for the LNG plant was ”being manufactured”.
Energy World’s timetable was unambiguous: ”Our first 500,000 tonnes per annum LNG liquefaction facility remains on target for production in the last quarter 2009.”
Certainly, according to the EWC cash-flow statements for 2008 and 2009, big licks of capital were being paid out for ”property, plant and equipment” – about $200 million.
Stewart provided comfort on this front: ”We’ve actually purchased all the equipment and it’s on its way now from factories around the world.”
It seems Stewart had solved part of the mystery for us. If the LNG plant was scheduled for production in the first quarter of 2009, then this latest funding from Richard Chandler must have been for another plant. After all, the diagrams showed prospective plants in Indonesia, the Philippines, Australia and Papua New Guinea, the last in a joint venture with the colourful InterOil.
No, said Stewart, the parts for the LNG plant in Indonesia were in storage awaiting final approval from relevant authorities. The company had got slightly ahead of itself when it said three years ago that it was ”building” the facility.
Where, then, did the $200 million-odd paid out for property, plant and equipment go? Bear in mind your run-of-the-mill LNG plant costs $5 billion these days. Woodside is forking out $15 billion for its 4.3 million-tonne-a-year project. But Energy World claims its ”modular” LNG plants cost just a 10th of the price per tonne of LNG.
”One of the reasons we have been able to keep our capital costs down is that we don’t put the mark-up on it like Woodside,” says Stewart, sounding as if he could give David Jones a tip or two about retailing.
But Stewart hardly needs to expand into retail. About one-fifth of that $200 million paid out for the LNG parts has gone to Slipform Engineering (H.K.) Ltd, a company incorporated in the British Virgin Islands and wholly owned by none other than Mr Stewart Elliott.