Hexagon Energy Materials Limited (“Hexagon” or the “Company”) is pleased to present the results of the Pre-Feasibility Study (“PFS”) for its 100% owned WAH2 low-emissions ammonia project (“WAH2” or the “Project”), to be located in the Western Australian Maitland Strategic Industrial Area.
Highlights:
- Pre-Feasibility Study completed on time and budget.
- Class 4 engineering and cost estimation undertaken by Petrofac, a leading energy services company.
- Positive results support commitment to Pre-Front End Engineering Design (“Pre-FEED”), which is scheduled to start mid-2023.
- PFS analysis indicates significant project scale, with Phase 1 based on 600 kTPA production capacity, doubling to 1200 kTPA once Phase 2 operational.
- PFS cost of supply1 considered competitive at US$552 /T ammonia (NH3). Targeting reduction to less than US$500 /T NH3 prior to entering FEED based on opportunities already identified.
- Base Case Phase 1 project NPV8 of A$248 M at an ammonia price of US$552 /T, robust to most downside outcomes.
- Expected emissions intensity of 1.1 kg CO2e /kg H2e is better than international benchmarks, with opportunities for further improvement identified.
- Use of proven technology and leveraging existing infrastructure has shortened expected schedule and reduced project risk and costs.
- The Company will seek to advance its Project Financing Plan which will include a mixture of debt, equity and government incentives in parallel with the technical workstream and ongoing commercial discussions.
Prefeasibility Study Outcomes:
The completed PFS demonstrates the technical and financial feasibility of the WAH2 project and supports Hexagon’s commitment to pre-FEED analysis with the aim of supplying low-emissions ammonia to its target, electrical co-generation, market in Asia.
Countries such as Japan and South Korea have mandated emissions control standards for the power generation industry that can be met in part by co-firing low-emissions ammonia in currently coal-fired power stations (with the proportion of ammonia consumed increasing over time). In recognition of this, Japan and South Korea are each seeking to establish secure supply chains for low-emissions ammonia.
The PFS has been completed with engineering and cost estimation undertaken by Petrofac in parallel to Hexagon’s commercial discussions with potential gas suppliers, CCS2 service providers, utility providers and ammonia customers.
The PFS Base Case is an ‘islanded project’ that builds, owns and operates dedicated facilities for the supply of utilities, production of ammonia and production export. This provides for a project that is, as far as practicable, independent of others and therefore offers Hexagon a high degree of control. It also facilitates the evaluation of potential benefits of third-party provision of services and shared infrastructure.
The Base Case Phase 1 development is estimated by the PFS to have a capital cost of A$1620 million (AACE Class 4) based on the following parameters:
- 600 kTPA of potential NH3 production capacity with an emissions intensity of 1.1kg CO2e/kg H2e, bettering international low-emissions benchmarks;
- A levelised cost of supply3 of US$552 /T NH3 which is considered competitive;
- At this ammonia price the project would deliver NPV8 of A$248 M and is robust to most downside outcomes.
The Base Case Phase 2 development PFS analysis has been completed based on an assumed doubling of production capacity and makes use of some existing infrastructure. At an ammonia price of US$552 /T, the combined Phase 1 and Phase 2 development would be expected to deliver an NPV8 of A$486 M at an IRR of 10.5%.
Hexagon is aiming to achieve a levelised cost of supply of less than US$500 /T NH3 prior to entering FEED based on significant opportunities that have already been identified. These relate to plant optimisation, shared infrastructure, third-party provision of services, accessing the value of Australian Carbon Credit Units, and Government funding and incentives.
Hexagon Chairman Charles Whitfield commented, “The positive outcome of the WAH2 Pre-Feasibility Study shows a significant opportunity to be a low-cost operation with an attractive NPV and IRR. This is another step in the path to bring the WAH2 project to fruition. This follows the grant of land for the project by DevelopmentWA last month. We intend to move immediately to progress the Front-End Engineering Design, offtake, financing, and approvals workstream and the Company hopes to be able to announce progress with strategic tie-ups in the near future.”
Way Forward
WAH2 project risks have been reduced to a level considered appropriate to commence Pre-FEED, which is planned to start mid-2023 and will focus on:
- Progressing commercial discussions with respect to ammonia offtake, gas supply and provision of CCS services to secure conditional4 agreements prior to FEED entry;
- Maturing opportunities for shared water supply, CO2 transport and ammonia export infrastructure to access economies of scale and further lower unit costs;
- Maturing opportunities for third-party supply of power to increase renewables penetration, capture synergies with plant and reduce overall costs;
- Optimising plant design to reduce unit capital and operating costs;
- Progressing commercial discussions with potential equity participants and financiers;
- Exploring opportunities related to Government funding and incentives;
- Executing Option to Lease with DevelopmentWA over allocated land; and
- Developing and executing a stakeholder management plan to build and maintain stakeholder support.
Pre-FEED studies are intended to support concept selection at the end of 2023 and FEED entry in early 2024. The project target remains FID at the end of 2024 leading to first production aim in 2027.
Financing
Hexagon will execute its Project Financing Plan in parallel to the planned technical and commercial Pre-FEED workstreams. This will involve examining a range of debt, equity and government incentive solutions for construction and working capital under a capital structure suitable to debt financiers, investors, partners, off-takers and shareholders.
Hexagon expects that financing will be facilitated by:
- Long-term, take-or-pay ammonia offtake contracts with high-credit counterparties;
- Long-term gas supply and CO2 sequestration contracts; and
- Equity participation by strategic partners. This could include customers wishing to participate in the supply chain, gas suppliers wishing to de-carbonise a stream of their production, or infrastructure investors seeking exposure to low-emissions energy assets.
Confidential discussions are ongoing with a variety of counterparties and the Company will inform the market as and when agreements are finalised.
Regulatory Support
Australia released its National Hydrogen Strategy in 2019 which set a goal for Australia to be a global hydrogen leader by 2030. In support of this, Australia recently conducted a National Hydrogen Infrastructure Assessment to assess the investment required in Australia’s supply chain infrastructure to underpin the rapid scale-up required over the next decade.
PFS Summary Report A report summarising the WAH2 Project Pre-Feasibility Study is available on the ASX Announcements page of the HXG website www.hxgenergymaterials.com.au or by following this link,
Read the most up to date Fuel Cell and Hydrogen Industry news at FuelCellsWorks
