Leigh Creek Energy Limited (ASX:LCK)
Leigh Creek Energy is developing its flagship Leigh Creek Urea Project (LCUP), located 550km north of Adelaide in South Australia.
The $2.6 billion LCUP will be the lowest-cost sovereign producer of urea, producing nitrogen-based fertiliser for local and export agriculture markets. It will provide additional security for a critical product for the Australian agricultural sector and avoid supply-side risks associated with international transport, exchange rates, commodity prices, and import logistics that Australian farmers contend with.
The LCUP is the only fully integrated urea production facility in Australia, with all inputs (gas feedstock, power, and logistics) for low carbon urea production available on-site. The urea plant will initially produce 1 million tonnes per annum of urea, with the potential to increase to 2 mtpa. It will use LCK’s 1,153PJ 2P gas reserves which are sufficient to operate the plant for 30+ years.
Average nominal operating costs are forecast to be $109 per tonne which is within the lowest cost quartile of the global urea production cost curve. Pre-tax leveraged Net Present Value (NPV) is A$3.4 billion, with an Internal Rate of Return (IRR) of 30%.
LCK will be carbon neutral from 2022 and has a comprehensive environment, social, and governance strategy to achieve this. It has produced syngas within all approved environmental parameters set by the regulator and will achieve carbon neutrality through a combination of renewables, purchased offsets, and carbon farming programs, eight years ahead of schedule. LCK recently confirmed the engineering and geological viability of Carbon Capture and Storage of CO2 at the LCUP.
The company has signed an Engineering, Procurement, Construction and Commissioning contract (EPCC) with major South Korean engineering and construction company, DL E&C, (part of the Daelim conglomerate) to provide development of all downstream operations (the above-ground operations that manufacture the ammonia and urea). Daelim is one of the largest and most experienced developers of infrastructure projects of this type in the world.
In conjunction with the EPCC, a letter of support from a major South Korean bank has been issued to LCK to provide debt finance for up to 70% (or AUD ~$1.5 billion) of the above-ground development project costs.
DL E&C/Dealim is progressing the Front-End Engineering and Design (FEED) stages, ahead of the Final Investment Decision (FID). It has resourced over 100 professionals and engineers for the project and intends to establish a presence in SA in the near future. NexantECA will independently manage the Bankable Feasibility Study (BFS) process for the LCUP, on behalf of Daelim.
During construction between late 2021 to 2024, the LCUP will be one of the largest infrastructure projects in South Australia creating thousands of construction jobs. Once operations start the LCUP will create 500 direct and several hundred more indirect jobs for the Northern Flinders Ranges region.
Learn more: www.lcke.com.au
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