Diversified mining company Exxaro Resources has entered into formal agreements with oil and gas producer Linc Energy.

The agreements will allow Exxaro to jointly pursue Underground Coal Gasification (UCG) as a commercial business to develop energy solutions in sub-Saharan Africa.

Exxaro explained that the agreements consist of an intellectual property licence agreement supported by a services agreement and a master agreement that will govern key aspects of the relationship.  The agreements are, among other things, conditional upon exchange control approval being granted by the South African Reserve Bank for the payment of the licence fees and royalties for the intellectual property.

Key aspects of the agreements include Exxaro having to pay a AU$20 million upfront licence fee once conditions precedent are met, in return for the access to Linc Energy’s UCG technologies for application in sub-Saharan Africa; a further fee of AU$7 million payable by Exxaro on the initial UCG project passing agreed performance tests, which is expected to occur in 2017; and royalties payable for the synthesis gas produced and sold.

Other aspects of the agreements will see Exxaro being granted a non-exclusive licence to use Linc Energy’s UCG intellectual property in sub-Saharan Africa and an exclusive licence for certain areas within sub-Saharan Africa, as well as Exxaro having access to Linc Energy’s UCG intellectual property to jointly develop UCG commercial opportunities on their coal resources outside sub-Saharan Africa.

Exxaro is pleased with this progress in the relationship and the ground-breaking work with Linc Energy, which furthers our strategy of pursuing energy-related opportunities. Reaching this milestone opens the door for the teams to commence with the detailed project work to monetise the inherent value we believe is contained in this clean coal technology,” said Exxaro’s CEO Sipho Nkosi.

The company advised that Linc Energy will hold a minimum of 15% equity in the first project and have the option to participate up to a 49% equity position in all UCG projects which Exxaro develops.

In completing the formal agreements, the companies reconfirmed the importance of their relationship which targets a vast part of the coal-rich African continent for UCG commercialisation.

“This is a substantial strategic move by Linc Energy to add Africa to its global portfolio to roll-out UCG as an alternative and complementary energy solution.  These developments, to the mutual benefit of the partners, shareholders and stakeholders in these developing regions, will bring efficient and reliable energy supply which is an essential part of the economic uplift of the local and regional communities,” said Linc Energy’s CEO Peter Bond.

The formal agreements are the culmination of joint concept studies conducted by Exxaro and Linc Energy over the past 18 months under a previously announced Memorandum of Understanding between the parties in November 2011 and the subsequent Term Sheet between the parties announced in December 2012. The parties will implement a business model which optimally combines Exxaro’s strategic interests to expand its coal beneficiation opportunities with Linc Energy’s unique position as a world leader in UCG and downstream process integration know-how

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