Major delay hits SA resources project

A controversial resources project once touted as a potential major contributor to the eastern states gas market has had its aspirations hit with a significant delay.

Leigh Creek Energy's gas field site at Leigh Creek in South Australia. Picture: Supplied

A controversial South Australian resources project, which was once touted as a potential major contributor to the eastern states gas market and the “largest gas reserve for commercial use” in the state, has had its aspirations hit with a significant delay – in a move certain to be cheered by its opponents, who’d like to see the project killed off forever.

It’s the latest development in a long and winding road for ASX-listed entity NeuRizer, which has set numerous deadlines over the past decade for what was at one stage going to be an enormous gas project, and has morphed in later years into a urea project aiming to feed into the fertiliser market.

Those deadlines, which initially foresaw gas production at least five years ago, have not been met, and the company’s ability to continue as a going concern is at risk, with the company more than $50m in debt and the share price languishing below 1c.

The latest hit to the NeuRizer Urea Project comes in the form of changes to the federal Environment Protection and Biodiversity Conservation Act, which the company says blindsided it, and mean the development of even the first stage of the project at Leigh Creek — the site of a former thermal coal mine in the State’s Far North — is unlikely to happen this year

The NRUP began its life a decade ago as a synthetic gas project, costed at up to $2.6bn — and, its proponents said (underpinned by consultants’ reports) containing thousands of petajoules of gas.

The listed entity backing the project, now known as NeuRizer, went by the name Leigh Creek Energy, which itself had just transformed from its previous iteration: Marathon Resources.

Regulatory Woes

Marathon Resources was bedevilled by its own regulatory woes.

That company was part of the large cohort of junior explorers looking to define new uranium resources in SA previous to the Global Financial Crisis.

Marathon was arguably one of the leading lights in the sector, backed by the late mining magnate Ken Talbot, and enjoying significant share price gains.

That came spectacularly undone in 2008 when the company was found to have inappropriately disposed of tonnes of uranium exploration waste at its Mt Gee project in the Flinders Ranges, inside the Arkaroola Wilderness Sanctuary.

The issue caused a political firestorm, with the Mike Rann-led Labor government of the time eventually banning all mining activity in the sanctuary.

Marathon eventually accepted a $5m compensation payout from the government, and in 2014 a proposal to backdoor list a company named ARP TriEnergy into the listed entity resulted in the creation of Leigh Creek Energy.

The new company’s pitch was controversial from the start.

To begin with it was headed by current executive chairman Justyn Peters, a former senior executive at Linc Energy, which was eventually found guilty of wilfully and unlawfully causing environmental harm between 2007 and 2013 at a project in Chinchilla in Queensland.

There is no suggestion Mr Peters was involved in those matters.

However the technology being used was the same: a process called underground coal gasification, in which coal seams underground are set alight, with the partially combusted gases which result captured at the surface to be processed into so-called synthetic gas.

Linc, which failed to attend court in the Queensland matter, was found in 2018 to have mismanaged how the underground burning was carried out, releasing contaminants into the soil, air and water.

UCG technology is not widely used in the West, and senior figures in the oil and gas sector in SA were privately appalled that the state government was even countenancing its use.

So too were local indigenous groups.

While there was a strong desire for a revitalisation of the local economy following the closure of the Leigh Creek coal mines — precipitated by Alinta Energy shuttering its coal fired power plants at Port Augusta in 2016 — the potential environmental impacts raised serious concerns with the local Adnyamathanha people.

Adnyamathanha representative Enice Marsh said at the time there was no way their concerns about what was at the time a potential gas project, could be mitigated.

“(UCG) is banned overseas and across Australia, so why should it be introduced near Copley (in the Flinders Ranges), as if Copley doesn’t matter?’’ she said.

“UCG is not negotiable, no matter what amount of money is involved. It needs to be left alone. The dirty filthy business of UCG may be stopped with the Aboriginal Heritage Act.’’

Court Action

A bid was launched in the Supreme Court to have an injunction put in place to stop the project going ahead, with the company winning the day.

But the project was also causing political headaches for the Labor Party.

A motion was passed at the ALP’s state conference in SA in 2018 which called for a ban on UCG at the Leigh Creek project, effectively making it party policy.

The motion moved by the Australian Services Union stated that “South Australian Labor stands with the Adnyamathanha people and commits (Labor) to doing everything in our power to ban this dirty and dangerous technology”.

It also warned of significant environmental risks and condemned the Liberal government of the day for approving a three-month trial that had been three years in the making — stretching back well into Labor’s previous term.

In the background to these community and political ructions, the company was promoting a project which it said could be developed in stages, costing up to $2.6bn, and could make a major contribution to the nation’s gas supplies.

Leigh Creek Energy originally aimed to produce gas from a pilot plant in 2016, providing a proof of concept for the project.

The pilot plant eventually started operating in late 2018.

On October 10, 2018, the company announced it had produced its first syngas from the pilot plant, while its gas resource sat at almost 3000 petajoules of gas, or 7.8 per cent of the resource for the eastern seaboard.

Representatives from China’s Shanghai Electric Power Generation Group were scheduled to visit the site to assess a joint development of a gas fired power station, and China Communications Construction Company signed a heads of agreement with Leigh Creek Energy, envisaging it being involved in project finance and operations.

In early 2019, the company declared the pre-commercial demonstration plant’s operation a success, with the underground gasification process operating safely and the move from a contingent to a proved and probable reserve under way.

It said at the time it had received “multiple expressions of interest from domestic and international energy and fertiliser companies’’.

At the time, with the stock trading at 17c a share, Leigh Creek Energy was valued at $82m.

The significant interest in gas offtake deals was reiterated in May 2019, with the company’s then-managing director Phil Staveley saying they looked forward to updating the market as the talks “progress to binding agreements that map out LCK’s way forward to its ommercialisation path in the very near future’’.

By mid-2020 however, the company started talking up the use of its gas in urea to feed into the fertiliser market, rather than options aligned to energy production and gas supply.

It said it could produce gas at just $1 per gigajoule, and a prefeasibility study released in November 2020 envisaged a $2.6bn operation operating for more than 30 years, which also had the potential to produce hydrogen.

A bankable feasibility study and the submission of an environmental-impact statement were on the cards for 2021, with a 5MW power station also envisaged.

A final investment decision was made to progress with stage one of the urea project in March 2021, however, crucially, some environmental approvals still needed government sign off.

NeuRizer’s u-turn

On September 6, 2021 the company announced it had done away with its aspirations to be a gas and energy company, to focus on urea, and renamed the project the Leigh Creek Urea Project.

The company kept ticking off milestones, raising tens of millions of dollars along the way, and over the years announcing numerous deals such as offtake plans and heads of agreements to collaborate.

Progress on the actual project however remained slow.

In March 2022 the company renamed itself NeuRizer, to more closely align with its urea ambitions.

In April that year, the company told the market that while it had completed an “initial” bankable feasibility study, it was not allowed to release this “in accordance with regulatory requirements’’, and had to wait until a final BFS was ready.

It also signed on Korean firm DL E&C Co as a major shareholder, taking up $US10m in new shares for a 9.1 per cent stake in the company at 15c a share.

By late 2023 the BFS was still yet to be completed however, with the timeline pushed out to the first quarter of this calendar year, with construction to start in the second quarter.

Negotiations with a strategic partner over the NRUP project continued, as did the process of trying to obtain environmental approvals.

In January this year, the company made its managing director position redundant, letting go Mr Staveley, who in the 2023 financial year was paid almost $2m including almost $1.2m in cash and $488,000 worth of share options.

Executive chairman Mr Peters was paid $565,700 in base remuneration for that year, with share options pushing his total package to $1.1m, down from $2.1m the previous year, in which he was granted $1.6m worth of share options.

The company’s December quarterly report, released on January 18, revealed that the potential strategic partner had walked away, throwing the timeline for a proposed final investment decision on the urea project up in the air.

Crucially the SA government also “chose not to allow Stage One of the NRUP unless a determination was made under the EPBC as to whether … the project was a controlled action’’, the company told the ASX.

“There was no legislative requirement for this referral, but due to the government’s position, the company was required to refer Stage One under the EPBC act,’’ NeuRizer said.

The company did a self assessment under the Act which it believed showed there were “no matters of national environmental significance present or likely to be significantly impacted’’.

However the federal government’s Department of Climate Change, Energy and Water told the company it would need to do an environmental-impact statement for stage one, with the company also saying the government pushed through changes to the Act late last year, bringing unconventional gas under its remit.

“These changes were made despite ministerial assurances that no changes would occur until late 2024 and after consultation,’’ the company said.

The company said it doesn’t yet have even the terms of reference for the EIS.

“Given the recent legislative amendments, it is unlikely that Stage One could commence in this calendar year,’’ NeuRizer said.

“This has flow on effects on the company’s other timelines.’’

NeuRizer told The Australian last week: “The federal government amended the EPBC Act to include unconventional gas in the water trigger.

“We have not been advised by the Minister’s department how this will impact the timing and scope of the approval process.

“In addition, we note recent reports in the media purporting to assert that the Minister recently announced her intention to hand back the assessment process to state governments.

“Again, we have been given no indication of the timing or impact of this proposal.’’

NeuRizer shares collapse

By February the company’s shares were trading at less than 1c.

It owed $US20.4m to DL E&C Co — payments for bankable feasibility work — but said it was in talks around two transactions which “are expected to be revenue positive” and expected to be finalised by July or August.

It also revealed in February the final feasibility study on the NRUP, which it had been working on with DL E&C Co, would need to be significantly reworked, and the power element of the proposal had now also been shelved in favour of grid power.

As it stands now, the company has no set timeline for an EIS to underpin its project, and is going back to the drawing board on a feasibility study for what the project — which was to have started producing gas five years ago — even looks like.

NeuRizer had $1.47m in current assets including $844,480 in cash at the end of 2023, and $51.9m in current liabilities.

The company has to date capitalised $121.7m in exploration and evaluation expenditure.

NeuRizer’s half year report included a “going concern” statement about the company’s ability to continue to trade on, and its sole Australian directors are now Mr Peters and his daughter Jordan Mehrtens, who has been employed by the company for some years and has been its company secretary for some time.

The company, with more than 1.5 billion shares on issue, is now worth just $7.5m.

NeuRizer was also called upon by the ASX this month to clarify what the transactions were which could help it generate revenue.

One was around a possible UCG project in China in collaboration with the Meijin group, which NeuRizer said could generate $US25m in fees for each of two sites, while the other was for a urea sales and marketing agreement with Samsung, for product which by definition, won’t be produced for years.

The shares were reinstated to trade on April 15, having been suspended while the company clarified points in its half year report.

In a fundraising document lodged with the ASX on Friday, the company also revealed that the corporate regulator ASIC, “gave notice to the company … to produce certain books in connection with an investigation regarding possible contraventions of certain provision of the Corporations Act and ASIC Act’’.

NeuRizer said it had handed over the records to ASIC in December and has heard nothing from the agency since.

The stock closed at 0.6c on Friday, giving it a market capitalisation of $4.5m.

Originally published as Major delay hits SA resources project