Linc Energy has signed formal agreements with Exxaro Resources to jointly develop its first commercial Underground Coal Gasification (UCG) project in Sub-Saharan Africa.

The agreements allow for the joint pursuit of UCG to develop energy solutions in the region, including utilising synthesis gas (syngas) for power generation and gas-to-liquids.

Under the deal, Linc Energy will receive an upfront licence fee of AUS$20m; ongoing royalties (indexed to Australian CPI from December 2012 and escalating in line with each relevant project country index for power purchases) for the synthesis gas produced and sold; a further AUS$7m on the initial UCG project passing agreed performance tests, currently scheduled for 2017; and engineering fees for services to the partnership.

Linc Energy has also agreed to take a minimum of 15% equity in the initial UCG project, plus an option for up to 49% equity participation in all UCG project developed by Exxaro.

In return, Exxaro Resources will be granted a non-exclusive licence to use Linc Energy’s UCG intellectual property in Sub-Saharan Africa and an exclusive licence for specified areas within the region.

Linc Energy CEO Peter Bond said the deal marked a significant milestone for the company.

“We have developed a world-class technology that will contribute to the global energy demands,” Mr Bond said.

“This agreement with Exxaro demonstrates the real, tangible value of our technology and know-how and marks a new era for our underground coal gasification business as we expand our world leading position in UCG around the world. Importantly, we will look to license or joint venture the opportunities to allow us to expand within our means.”

“In the short-to-medium term we expect to execute a number of other commercial UCG opportunities currently being negotiated across the globe,” he said.

Mr Bond said there was growing awareness internationally of the potential of UCG and its range of applications, from liquid fuels, to gas and power generation.

“The UCG process is a clean, indirect mining option and provides an affordable and safe method of creating an alternative energy source for a growing world market.”

“The Exxaro deal will see UCG deliver an alternative and complementary energy solution to Southern Africa, bringing efficient and reliable energy supply to developing regions and an economic uplift to the local communities.”

Mr Bond said the formal agreements with Exxaro Resources were the culmination of joint concept studies on prospective coal resources over the past 18 months under an MOU announced in November 2011 and subsequent Term Sheet announced in December 2012.

The agreements consist of an Intellectual Property Licence Agreement supported by a Services Agreement plus a Master Agreement governing key aspects of the relationship and are conditional upon Exchange Control Approval being granted by the South African Department of Trade and Industry and the South African Reserve Bank for the payment of the licence fees and royalties for the Intellectual Property.

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.