It would be difficult to find a share performance worse than ESI's over the last three years.  As the Chairman frankly said today, almost every governance aspect of this energy company went awry since listing. It was undercapitalised, management was not ready, major shareholders had too large a say...he went on. But when he turned to the actual business the message was far more positive. ESI was getting there. It had formed firm commercial partnerships and had viable plans and projections. It is a good idea.

Ideas, however, don't spin cash. We should explain that ESI holds the rights to a patented method of drying lignite or brown coal. It is simple enough even if it took a decade to fully develop.  Brown coal, a very soft material, is crushed to powder form. Water is added to form what looks like black dough. It is stirred (attritoned to be technical) and extruded like pasta wich forms pellets about the size of a thumb. With the surface area greatly expanded the internal heat generated by attrition is given a further evaporative assistance with warm air drawn from nearby power stations. A furher period of drying ( 48 hours is plenty) reduces the water content from 60-62% to 12%. The result is a highy reactive, low sulphur coal which can be used as direct power station feed or as a steel coal. When mixed with low grade iron ore (high grade works well but costs more) it ignites well in a retort and produces high quality, low carbon steel.  It can also be used to produce gas or oil by the same proces used by Sasol in South Africa.  More importantly in the short term, the net greenhouse emissions of of dried coal are far less than wet coal, for the simple reason that the energy content of the coal rises almost threefold. The less coal used, the less emissions.

The concept has commercial potential for several reasons.

1) Market size: about 40% of the world's coal is lignite and 90% of Victoria's power is generated by brown coal. 

2) lignite poses a high risk for power stations as they face rising carbon imposts either as permits or taxes.

3) the related steel proces (Matmor) is proven. While a boutique process for the time being, it has flexibility. Coke ovens can be by-passed and a range of steels can be prodcued with simple retorts which use the high volatility of the coal's gas to create the temperatures required.

4) lignite is a cheap fuel, far cheaper than power coal. This process produces an energy equivalent coal for $25-30, offering scope for very high margins.

That's the positives. One considerable draw-back is the Australian market's entrenched hostility to technology and to improvement and change. Americans once prided themselves on a "can do" culture; ours is so often a defensive "can't do" society which many investment professionals, almost entirely unqualified in hard sciences, prefer for its lack of technical challenge. To many Coca Cola is the quintessential and  ideal stock. There is nothing to make or improve or enhance in value. Buy water, add sugar and advertise. Margins are good, stress is low. If it contributes to an obese, lethargic society so be it. Let the masses drink coke; the main concern is relative investment performance and maintenance of fees. Why make life difficult?

Will ESI succeed?  We're hopeful, not certain. There is now a process design, temporary funding is in place and we believe there are some reasonably sized players who are happy to be associated with the construction of a plant in the La Trobe Valley. The risks are falling but not removed. Still lacking is publicly stated support from a power generator. An MOU from one expressing interest is something, but not much in this climate. However, we are reassured by the Chairman's firm words. The Board certainly understands what it has to do. What ESI needs now is an engineer partner of scale. A Transfield would be good, a Worley Parsons or Tata would be even better.  Stranger things have happened. Small Jervois has China Rail, one of the world's Top 300 companies, as its development partner for its Young nickel project. 

Maybe ESI will think outside the square.  One thing is certain: Victoria's power stations will have to reduce their CO2 emissions fairly soon. Once the Tibetan glaciers have melted completely (about 25% gone now) the great rivers of Asia will only run in the wet season. Not good, but maybe they could drink coke instead.