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Next-Generation Energy

MERRIMAN
CURHAN
FORD White Energy Company, Ltd. (WECFY) Buy

Commercialization of “White Coal Technology” Starts with Tabang


Project; Production Ramp Beginning; Transferring Coverage at Buy
February 20, 2009

Key Metrics Investment Conclusion


Brion D. Tanous Price OTC QX-ADR 5:1: US$5.25 White Energy Company is focused on the commercialization of coal
Managing Director Price ASX (WEC) : AU$1.57
upgrading technologies. The company owns the global marketing
(310) 377-1289 Rating: Buy
rights to the White Coal Technology, a patented process that incorpo-
btanous@mcfco.com 52-Week Range (ADR): $4.00-18.95
rates dehydrating and briquetting of lower-grade coals to achieve a
3-Year EPS Growth: NM
higher-grade equivalent. Leveraging this fuel upgrading process, the
Cash (M): AU$35.0
company can take advantage of the price differential by brown, sub-
Debt (M): AU$47.4
bituminous and bituminous coals, yielding a high margin business
Debt/Capital: 40%
which simultaneously improves plant emissions.
Book Value/Share: AU$0.56

Market Data Summary


Market Cap (USD M): US$132 • BCB process adds value to sub-bituminous coal. Raw feed coal
Ent. Value (USD :M): US$140 is crushed and dried, obliterating its water content. The dry, crushed
Shares Out—ASX. (M): 126.0 coal is then compacted, creating tight bonds between the coal parti-
Float (M) - ASX: 112.9 cles and eliminating nearly all voids. The result is a higher-density,
ADRs Out (1)
—QX. (M): 25.2
higher-energy briquette with low permeability and reduced propen-
sity toward spontaneous combustion. White Energy has upgraded
Insider Ownership: 34%
samples from Australia, China, Indonesia, South Africa and the
Stock Performance (OTC QX) United States.
• Multiple projects in the works. White Energy’s 51% owned sub-
sidiary, PT Kaltim Supacoal, is constructing a 1M metric tonne (MT)
per annum binderless coal briquetting plant in Indonesia. The JV is
commissioning the facility this period while completing final plant
construction, and plans to ramp production of White Coal briquettes
over the next six months. The Buckskin project (1M short tons) is
projected to be commissioned in June of 2010, while the Adaro pro-
ject (1M MT) will take place in FY11.
• Estimates and valuation. We estimate that White Energy will earn
Source: otcqx.com AU$0.21 per share on net revenue of AU$87M in FY11. Applying a
12-15x multiple to these earnings and discounting it back indicates
Valuation (AUD based) a fair value for the ADR in the US$7-9 range. Critical to the com-
MERRIMAN CURHAN
P/E FY11E: 7.6x pany’s success will be the continued attraction of well-funded part-
FORD ners to help finance the BCB technology deployment in key geogra-
EV/FY10E Net Revs: 5.9x
600 California Street
EV/FY11E Net Revs: 2.4x phies. We transferring coverage of WECFY shares with a Buy rating.
9th Floor
San Francisco, CA 94108
(415) 248-5600 Main Company Description MCF Estimates* - AUD
(415) 248-5690 Fax FY08A FY09E FY10E
(800) 909-7897 Trading White Energy, based in North
SALES* (M)
www.mcfco.com Sydney, Australia, is the exclusive
1H $1.2 $0.0 $1.0
worldwide license holder of a
NASDAQ: MERR unique Binderless Coal Briquet-
ting (BCB) process that enhances 2H $2.7 $0.3 $14.9
Member FINRA/SIPC
relatively poor quality coal (sub-
bituminous) and significantly in- FY (June) $4.0 $0.3 $15.9 $18.9 $35.9
creases its energy efficiency
through a low cost production
EPS*
process. The patented process
1H ($0.05) ($0.05) ($0.07)
Please see involves the crushing, drying and
Important briquetting of high moisture
Disclosures on the coals, resulting in the reduction of 2H ($0.07) ($0.05) $0.02
last page of this moisture content and converting
the product into a higher energy,
report. FY (June) ($0.12) ($0.09) ($0.05) $0.01 $0.01
stable product with low sulfur and
P/E NM NM NM NM NM
ash characteristics.
*Net Revenues—AUD
(1) Adjusted for 5-1 ADR
Next-Generation Energy
MERRIMAN
CURHAN
FORD White Energy Company, Ltd. (WECFY) Buy

Company Overview

Headquartered in Sydney, Australia, White Energy Company (ASX: WEC and OTCQX: WECFY) holds an ex-
clusive patent on a coal-refining technology developed by Australia’s Commonwealth Scientific and Industrial
Research Organization. The company’s White Coal Technology upgrades lower-grade coals by removing
moisture from the coal, thereby increasing heat energy content, quality, and most importantly, value. In a
process that has been largely proven in other industrial applications, the low-grade coal is crushed, dried and
compacted, which creates closer bonding between coal particles. This bonding allows for the coal to be a
higher density while protecting against spontaneous combustion, allowing the coal to be more easily distrib-
uted.

White Energy recently announced successful briquette production from its Cessnock pilot plant. With the
process proven out in its scalable pilot, the company is now focusing on the completion of its first commercial
plant in Indonesia in a joint venture structure with Bayan Resources. With one million metric tones (MT) of
coal briquettes as the initial target, the plans are in place for expansion to the five million MT per year level.

The company is moving forward with other joint venture agreements for expansion into other key target
markets including China, North America and Africa. Given the simplicity and cost-effectiveness of the proc-
ess, combined with attractive market dynamics, we believe there are impressive prospects for this company
going forward.

On July 23, 2008, White Energy began trading on the International PrimeQX, with the ticker WECFY. Five
shares from the ASX represent one ADR on the OTCQX. White Energy was first listed on the ASX in March
2005, and we believe they will recognize their first commercial revenues in 2009.

Cessnock Production Plant

White Energy has completed the construction of its 90,000 ton per year commercial scale production plant at
Cessnock, New South Wales (South-Eastern Australia). Not only has the design and construction of this bri-
quetting plant facilitated the improvement of future plant designs (including the Tabang Mine project being
commissioned), but it has also aided in the understanding of processing multiple varieties of coal which
should provide valuable intellectual property for the company as White Energy expands its footprint to a vari-
ety of global geographies with varying coal types.

The Cessnock plant will continue to process significant quantities of feedstock coal in order to refine future
plant designs. The facility has successfully tested many coals from around the world using its proprietary bri-
quetting process, and recently upgraded very high moisture (65%) brown coal, which originated from the
Latrobe Valley in Victoria, Australia.

February 20, 2009 2


Next-Generation Energy
MERRIMAN
CURHAN
FORD White Energy Company, Ltd. (WECFY) Buy

White Energy plans to use the Cessnock plant to process a range of feedstock coals in the next few months,
including a large coal sample of up to 3,000 MT from PT Adaro Indonesia (discussed later in the report), as
part of the company’s partnership with Adaro for a joint venture in the production of upgraded coal bri-
quettes. The two companies are also discussing options for selling the upgraded coal produced from the sam-
ple provided by Adaro. In addition to being the center of White Energy’s R&D effort, the Cessnock facility is
representative of the design and construction process for the company’s commercial plant being built at the
Tabang mine. The modular design of the company’s BCB process reduces the cost and simplifies the con-
struction and commissioning phases.

White Energy’s Cessnock Pilot Plant

Source: White Energy Company, Ltd.

Clean Coal Verticals

We believe that clean coal technologies can be broken down into five primary categories: pre-treatment,
combustion and combustion optimization, post-treatment and remediation, gasification and coal-to-liquids
(CTL), and carbon capture and sequestration. Although we believe the implication of the technologies in any
one of these verticals will be beneficial from an environmental standpoint and could bring facilities into com-
pliance with emissions mandates, looking forward, it would be expected that a number of technologies would
ultimately be employed in the transition from coal to useful energy.

White Energy is targeting the pre-treatment vertical with its patented


Binderless Coal Briquetting (BCB) process.

February 20, 2009 3


Next-Generation Energy
MERRIMAN
CURHAN
FORD White Energy Company, Ltd. (WECFY) Buy

Current and future legislation mandating more stringent emissions regulations combined with new technolo-
gies that create opportunities to save money with improved energy generation efficiencies, in our view, will
drive sector-wide market growth for decades to come. White Energy participates in the pre-treatment verti-
cal of the clean coal sector.

Clean Coal Verticals

Combustion/ CO2 Capture/


Optimization Sequestration

Post-Treatment/
Pre-Treatment Remediation

Mine Emissions

Gasification/
Coal-to-Liquids

Source: Merriman Curhan Ford

Pre-Treatment

Coal pre-treatment can allow for tailoring coal characteristics to specific applications at some point during the
transition from the coal seam to the boiler — essentially during the steps prior to combustion. This fuel opti-
mization can range in purpose from facilitating ease of transportation and storage to the separation and re-
moval of specific elements within the coal.

The technologies in this specific vertical of clean coal technology involve processes with combinations of
steps, including grinding, separation, washing, dehydration, microwaving and compression, among others.
The technologies and processes are quite diverse within this vertical and are primarily in the realm of re-
search and development phase to early commercialization. White Energy’s technology is one of the few today
that are fully functional and ready for commercialization.

The company’s BCB process produces an upgraded coal briquette which significantly reduces the hazards and
adverse environmental effects of transporting the resource to the points of consumption. White Energy’s BCB
process reduces the possibility of spontaneous combustion of the coal, because the upgraded coal is physi-
cally stable and resists the re-absorption of moisture, which can cause the coal to spontaneously combust.

White Energy is able to eliminate the coal dust during transport by binding the coal together without bonding
agents, creating a stable briquette.

February 20, 2009 4


Next-Generation Energy
MERRIMAN
CURHAN
FORD White Energy Company, Ltd. (WECFY) Buy

Mine-to-Boiler Transport “White Coal” Briquettes

Source: Indiana Office of Energy and Defense Source: White Energy Company, Ltd.

Abundance and future dependence. Coal is currently the world’s largest single source of electricity.
Unlike petroleum, worldwide coal deposits are plentiful enough to supply the world with energy for centuries,
and the location of these resources could potentially ease geopolitical tension if properly utilized.

Although alternative energy sources such as solar power are poised to reach competitive production efficien-
cies, coal-based power is expected to remain a key source of power for developed countries such as the
United States, which derives approximately half of its electricity production from coal. Other developed and
developing nations are highly dependent on the resource as well, generating the vast majority of their en-
ergy from coal.

The United States has two or three times as much energy in coal as Saudi Arabia
has in oil. Nearly half of that coal is located in the Powder River Basin.

February 20, 2009 5


Next-Generation Energy
MERRIMAN
CURHAN
FORD White Energy Company, Ltd. (WECFY) Buy

Types of Coal

There are four types, or ranks, of main categories of coal, each classified according to the amount of heat
energy produced from the coal type, as well as the amount and type of carbon emitted. From lowest to high-
est rank, the four coal types are lignite, sub-bituminous, bituminous and anthracite.

• Lignite coal is lighter and softer, with the lowest energy content (25-35% carbon). It is found in Texas
and accounts for 7% of the annual coal production in the United States. In the United States, it is used
primarily to produce electricity.

• Sub-bituminous coal is more mature, darker and harder. It has a higher heating value compared to
lignite, with 35-45% carbon. More than 40% of the coal in the United States is sub-bituminous. It is
found primarily in Wyoming.

• Bituminous coal is dark and hard. It contains 45-86% carbon, with two or three times the heating value
of lignite. Approximately half of the coal produced in the United States is bituminous. It is found in West
Virginia, Kentucky and Pennsylvania. It is used to produce electricity and used in the steel and iron in-
dustries.

• Anthracite, having reached “ultimate maturation,” is the hardest and shiniest of the coal ranks, with 86-
97% carbon content. It has a slightly lower heating value compared to bituminous coal. Anthracite is ex-
tremely rare in the United States, as it accounts for less than 1% of U.S. coal production, all of which is
found in Pennsylvania.

The White Coal Technology processing steps consist primarily of removing moisture and the application of
heavy pressure so as to create small briquettes which can be handled and transported in the same fashion as
traditional coal. Although technologically quite simple, this patented process adds significant value to the coal
with improved fuel performance properties. The general process is as follows:

• Lower-grade coal is fed into the system and crushed

• Hot gas is used to dry the resulting coal fines

• The resulting powder is fed into the briquetting press

• “White Coal” briquettes are the output

• Unused coal dust is combusted to heat drying gas

The White Coal briquettes are very compact and maintain their form despite the lack of a binding agent
which could lead to issues upon combustion. The combination of heat, sheer and pressure allow for weak
bonds to form within the powder, making the briquette into a solid that maintains its form in typical coal
transportation conditions. Given the tightly compressed structure formed, there is little to no dust allowed to
slough off, and the coal cannot oxidize (spontaneous combustion risk) or re-hydrate.

February 20, 2009 6


Next-Generation Energy
MERRIMAN
CURHAN
FORD White Energy Company, Ltd. (WECFY) Buy

White Coal Technology Process

Source: White Energy Company, Ltd.

White Energy’s Technology Benefits

• Higher energy content. The BCB process increases heat, the useable energy content, by 30-
200%, creating valuable power generation efficiencies.

• Mechanical process. The BCB technology results in a mechanical process (not a chemical proc-
ess) that is designed to work at coal mines.

• Low upgrading costs. White Energy’s BCB process generates favorable conversion economics
allowing the product to compete with bituminous coals.

• Lower spontaneous combustion risk. The upgraded briquettes are physically and chemically
stable, and can be handled, stored and transported as normal coal.

• Lower transportation costs. Because the process reduces moisture, there can be up to a 30%
decrease in load volumes and transportation costs.

• Reduced greenhouse gas and pollutant emissions. BCBs burn more efficiently, lowering
CO2, SO2, NOx and Hg emissions and reduces dust when compared with un-processed sub-
bituminous coal.

Value Proposition

There are a number of benefits to be realized from applying this technology, ranging from economic to envi-
ronmental, which help to provide for an attractive business model, in our view. The White Coal process cre-
ates a product that is significantly upgraded from its original state. Looking at the following diagram, one will
note the general degree of upgrading the coal undergoes.

February 20, 2009 7


Next-Generation Energy
MERRIMAN
CURHAN
FORD White Energy Company, Ltd. (WECFY) Buy

White Energy’s Value Proposition

Source: White Energy Company, Ltd.

Both brown coal and sub-bituminous coals are processed to have generally the same characteristics as
higher valued bituminous coals, which would otherwise take millions of years. Since it is derived from
younger coals, the fuel has the added advantage of being low in sulfur as well.

This upgrading process may seem quite simple in nature, but the value of the fuel product is greatly en-
hanced. As can be seen from the following diagram, there is a very pronounced delta in pricing for the differ-
ent grades of coal. As can be seen, sub-bituminous coal pricing has been relatively flat, whereas bituminous
coals have steadily increased in the same timeframe. Utilizing the process, White Energy can take advantage
of this pricing difference and make a substantial margin, by simply buying low-grade coal, running it through
the plant, and selling the product for at or near bituminous pricing.

White Energy’s Binderless Coal Briquetting process enhances relatively poor quality coal (i.e. 8,800 Btus/lb.)
typical of Powder River Basin coal, and significantly increases its energy content to that of higher quality
coals (i.e. 11,500 Btus/lb.) at a cost that is a fraction of the pricing delta traditionally observed in the market
place. As of January 31, 2009, The Energy Information Association estimates the following spot prices for
coal varieties:
• Powder River Basin Coal with 8,800 Btu/lb.—$13 per ton
• Uinta Basin Coal with 11,700 Btu/lb.—$73 per ton

The current spread among these diverse coal products is approximately $60 per ton. White Energy’s binder-
less coal briquetting process is estimated to cost approximately $35 per ton to upgrade from Powder River
Basin quality to Uinta Basin coal quality, resulting in a significant potential profit margin of $35 per ton for
the company’s upgraded coal. Therein lies the economic attractiveness of White Energy’s low cost process.

February 20, 2009 8


Next-Generation Energy
MERRIMAN
CURHAN
FORD White Energy Company, Ltd. (WECFY) Buy

Relative Coal Pricing

Source: U.S. Energy Information Association (EIA)

Performance Characteristics

Source: White Energy Company, Ltd.

Through the drying and compression process, the coal is notably upgraded, which can be seen in the follow-
ing table comparing combustion characteristics for sub-bituminous coal, bituminous coal and White Energy’s
upgraded fuel. Of particular note, when using the upgraded fuel product, boiler efficiency is increased to that
of bituminous coal, however the emissions of harmful pollutants is greatly reduced relative to bituminous

February 20, 2009 9


Next-Generation Energy
MERRIMAN
CURHAN
FORD White Energy Company, Ltd. (WECFY) Buy

coals. From an emissions standpoint, there are not any additional issues that could potentially arise with the
compression process as it is binderless - no glues or other agents are needed to hold the briquettes together.

Coal has maintained its status as a viable long-term energy source throughout the world, due in large part to
the pricing and supply constraints placed on other existing energy sources. Oil prices have greatly increased
over the past few years, and natural gas prices continue to be volatile. Utilities have responded to these is-
sues by constructing greater numbers of coal-burning plants in the place of plants fired from alternative hy-
drocarbon sources, with dozens of new plants expected to be built during the next few decades.

Coal Production by Region (Billion of Tons)

Source: DOE’s Energy Information Administration

White Energy’s Geographic Focus

Besides the United States market discussed in the previous section, White Energy is looking to penetrate a
number of other markets. As the company moves forward, it is looking to develop strategic relationships,
including joint ventures that will help expedite penetration into those markets. The following diagram out-
lines these markets and relationships. Our near-term focus will be primarily on Bayan in Indonesia given the
progress on the plant there, but all of these represent interesting opportunities, in our view.

February 20, 2009 10


Next-Generation Energy
MERRIMAN
CURHAN
FORD White Energy Company, Ltd. (WECFY) Buy

White Energy’s Geographic Focus

Source: White Energy Company, Ltd.

Indonesia

White Energy’s 51% owned subsidiary, PT Kaltim Supacoal, has constructed a 1 million metric ton (MT) per
annum binderless coal briquetting plant at the Bayan Resources Tabang Mine in East Kalimantan, Indonesia,
which is currently undergoing commissioning. PT Bayan Resources owns 49% of the joint venture (Tabang
project). This will be the first commercial scale plant White Energy has constructed, however we believe this
to be only the beginning of a global rollout plan.

The upgrading coal facility will convert high moisture coals by removing the moisture through its proprietary
briquetting process, thereby significantly increasing the heat energy content and quality of the sub-
bituminous coal. The upgraded, export quality coal will then be sold and exported by PT Kaltim Supacoal. Our
earnings model looks for White Energy to ramp production at the plant to full capacity over a six month pe-
riod from April (2H09) through September 2009 (1H10). We look for increasing coal sales during the produc-
tion ramp up phase. We look for White Energy to be running at full capacity during the Fall of CY09.

White Energy will receive royalties for their BCB technology from the JV with PT Bayan Resources amounting
to US$9.00 per MT of briquettes produced, in addition to sharing (51%) in the net income of the project. Ap-
proximately half of the Tabang JV’s output will be sold at a contracted price of US$46.25 per MT, while the
other half of production will be sold into the spot market.

White Energy anticipates that production from the Tabang plant will be ramped up to full capacity from April
to September of 2009, with coal sales of upgraded product expected during this ramping phase. Our model
looks for initial revenues generated from the sale of upgraded coal from the Supacoal joint venture in F1H09
(current accounting period).

February 20, 2009 11


Next-Generation Energy
MERRIMAN
CURHAN
FORD White Energy Company, Ltd. (WECFY) Buy

White Energy’s First Upgrade Plant in Indonesia at the Tabang Mine

Source: White Energy

The Tabang plant is estimated to cost US$62-63 million, which includes a 10MW power plant estimated to
cost US$16 million. White Energy’s briquetting process requires approximately 10MW of electrical power for
each 1 million MT of annual capacity (powering 16 briquetting modules). The completed briquettes will have
to be transported to the river barge for export, at an estimated cost of US$14 per MT.

Transportation Cost Estimated at $14 per MT

Source: EnergyCurrent.com

Due to its remote location, the Tabang project cannot access grid electricity and therefore must utilize dis-
tributed power generation. Until the power plant has been completed, White Energy will utilize diesel gen
sets to produce the required electricity. The power plant is expected to be completed by September 2009.
The following table summarizes our projected economics for the Tabang project.

February 20, 2009 12


Next-Generation Energy
MERRIMAN
CURHAN
FORD White Energy Company, Ltd. (WECFY) Buy

Projected Economics of White Energy’s Tabang Project

Indo 4,200 kCal Feedstock contracted at


$8.61 per Metric Ton (MT)
USD/MT
Produced

Feedstock $ 12.92
Processing $ 6.00
Depreciation $ 3.12
Transportation $ 14.00
Total Cost $ 36.04

Royalties $ 5.80
Briquette Revenue $ 57.20
Total Revenue $ 63.00

Revenue based on average of 96.5% of


Indo 5,800 kCal and contracted $46.25 / MT

Source: MCF estimates, White Energy estimates

White Energy has also signed a joint venture agreement with Adaro Indonesia and Itochu Corporation to
construct coal upgrading plants with up to 8 million MT of annually capacity at an Adaro mine in Indonesia
(Adaro project). The joint venture anticipates completing the commissioning of the facility with an initial ca-
pacity of 1.0 million MT per year in the winter of CY10 and beginning production and sales of upgraded bri-
quettes in the spring of CY11. White Energy will own 51% of this joint venture with Adaro and Itochu owning
29% and 20%, respectively.

The projected cost of the Adaro project is approximately $45 million for the same capacity that the Tabang
project will initially provide. The lower cost of this project reflects the fact that the Adaro project will have
access to grid electricity and therefore, power plants are not required to be constructed to power the facility.

Similar to the JV with PT Bayan Resources at the Tabang plant, White Energy will recognize a royalty for its
BCB process of US$9.00 per MT of briquettes produced. The following chart details the projected economics
for this facility. Both the Tabang and Adaro mines will require transportation of the briquettes to a river
barge costing an estimated US$14.00 per MT.

February 20, 2009 13


Next-Generation Energy
MERRIMAN
CURHAN
FORD White Energy Company, Ltd. (WECFY) Buy

Projected Economics of White’s Adaro Project

Indo 4,200 kCal Feedstock contracted at


$8.61 per Metric Ton (MT)
USD/MT
Produced

Feedstock $ 12.92
Processing $ 6.00
Depreciation $ 2.25
Transportation $ 14.00
Total Cost $ 35.17

Royalties $ 9.00
Briquette Revenue $ 68.16
Total Revenue $ 77.16

Revenue based on 96.5% of Indo 5,800 kCal spot

Source: MCF estimates, White Energy estimates

In December 2008, White Energy signed a binding letter of intent with Asia Special Situation Acquisition
Corp. (ASSAC—AMEX:CIO) whereby White Energy has agreed to merge its South East Asian business into
ASSAC. Post merger, White Energy will own 56% and ASSAC’s existing shareholders will own 44% of the
merged entity. If approved by shareholders, ASSAC will maintain its public listing on the AMEX, but will
change its name to White Energy South East Asia Corporation (WESEAC).

Post merger, WESEAC’s assets should include:

• Exclusive rights to utilize White Energy’s BCB coal upgrading technology in the key Asian markets
of Indonesia, Singapore, Malaysia, Vietnam and the Philippines.

• Ownership of White Energy’s 51% share of two joint ventures in Indonesia with Bayan Resource
Group and Adaro Group and Itochu Corporation.

∗ The Tabang Coal Upgrade project in partnership with Bayan is scheduled to have an ini-
tial capacity to upgrade 1 million MT per year with the objective of having total produc-
tion of 5 million MT by 2011.

∗ The Adaro Coal Upgrade project is scheduled for initial capacity of 1 million MT also, and
is projected to increase capacity to 5 million MT by 2012 and eventually to 8 million MT
per year capacity.

• Cash of AU$170 million, which will be used to expand WESEAC’s operations and support existing
joint ventures.

Our earnings model has not been modified to incorporate the anticipated equity ownership changes, but will
be reviewed upon shareholder approval of the transaction.

February 20, 2009 14


Next-Generation Energy
MERRIMAN
CURHAN
FORD White Energy Company, Ltd. (WECFY) Buy

North America

The center of the domestic coal resurgence may come from the Powder River Basin, a region spanning the
Montana–Wyoming border. As of February 2005, the United States has an estimated 268 billion tons of re-
coverable coal in existing mines, which is two or three times as much energy in coal as Saudi Arabia has in
oil. Nearly half of that coal is located in the Powder River Basin.

Although Eastern coal from Appalachia has dominated the coal industry in the past, the supply is beginning
to run short (or is harder to access), and the price has climbed significantly over the past few years. The
price of Powder River Basin coal, on the other hand, has fluctuated by very little over the same period.

White Energy has sampled PRB 8400 (sub-bituminous) and successfully upgraded this coal variety from
8,400 Btu/lb. to over 11,300 Btu/lb. Given the value of the upgraded coal, which we estimate at 95-96% of
Colorado 11,800, or approximately $59.81 per ton, we believe White Energy can process 1.5 tons of PRB
8400 into 1 ton of upgraded briquettes at a cost of $32 per ton.

White Energy’s North American subsidiary, White Energy Coal North America, Inc., or WECNA, is the com-
pany’s operating division targeting several large scale opportunities in the U.S. White Energy has the oppor-
tunity to fund its efforts in North America through the sale of equity ownership in the WECNA subsidiary.
WECNA’s first project should be the Buckskin Mine project, followed by other larger projects, potentially with
a number of partners.

In March 2008, White Energy signed a Development Agreement with NRG Energy and Buckskin mining com-
pany, a wholly owned subsidiary of Kiewit Corporation, and subsequently completed a feasibility study to
build a plant in the Powder River Basin near Gillette, Wyoming. Pursuant to the agreement, Buckskin pro-
poses to lease the property necessary to site the plant at the Buckskin Mine, along with right of way for ac-
cess to the sub-bituminous coal. The capital cost of the facility is estimated by White Energy to be approxi-
mately $80 million and is expected to be operational by January 2010 and reach capacity by the end of
2H10.

We believe White Energy is considering selling 20%-30% of the company’s wholly owned subsidiary, WECNA,
to private investors. The company’s estimated valuation of WECNA currently stands at approximately $500
million, implying a potential capital contribution of approximately $100-$150 million by the potential pool of
WECNA investors. We believe this transaction could be critical to the company’s success in building out the
BCB process in multiple projects in the U.S. over time.

Upgrading PRB 8400

Source: White Energy

February 20, 2009 15


Next-Generation Energy
MERRIMAN
CURHAN
FORD White Energy Company, Ltd. (WECFY) Buy

White Energy is in the final stages of negotiation regarding both a long term coal supply contract and a lease
and services agreement with Buckskin to build the upgrading plant with initial capacity of 1.1 million tons of
annual capacity (binderless coal briquettes) with an intention to increase the capacity to eight million tons
annually over the next few years. White Energy is also working to establish off-take contracts for the up-
graded coal with NRG Energy and other parties. The Buckskin mine has been operational since 1981 and has
produced over 350 million tons of sub-bituminous coal.

Projected Economics of White’s Buckskin Project

PRB 8,400 Btu Feedstock contracted at


$11.98 per short ton (ST)
USD/ST
Produced

Feedstock $ 17.97
Processing $ 10.00
Depreciation $ 4.00
Transportation $ -
Total Cost $ 31.97

Royalties $ -
Briquette Revenue $ 59.81
Total Revenue $ 59.81

Revenue based on 95.7% of Colorado


11,800 Btu coal spot prices

Source: MCF estimates, White Energy estimates

Africa

White Energy has signed a joint venture agreement with an entity managed by Black River Asset Manage-
ment LLC (Black River), an independently managed subsidiary of Cargill, under which White Energy and
Black River will jointly develop and commercialize coal upgrading opportunities throughout Africa. The joint
venture is owned 51% by White Energy and 49% by Black River. White Energy intends to consolidate the
operations of the joint venture into its income statement.

Despite Black River’s 49% ownership in the JV, Black River has agreed to fund the joint venture on a dispro-
portionate basis of 66% to White Energy’s 34% funding commitment. In addition, as part of the transaction,
White Energy will receive an up front capital contribution of US$70 million from Black River, in exchange for
making the company’s technology accessible to the JV. White Energy will provide an equity contribution of
approximately US$31 million over time, upon the JV agreeing to proceed with projects that meet the JV’s
agreed investment criteria.

The JV will actively originate, develop, construct and operate coal upgrading plants in Africa whether on its
own or in conjunction with companies in Africa having access to appropriate coal reserves and/or power com-
panies looking to increase their energy output. The JV will have exclusive rights to utilize White Energy’s coal
upgrading technology on the African continent. White Energy, in addition to profit generated from its equity
interest in the JV, will receive an ongoing royalty stream based on the quantity of upgraded coal sold by the
JV. Our model does not yet incorporate any revenues from projects that the White Energy/Black
River joint venture will be pursuing.

February 20, 2009 16


Next-Generation Energy
MERRIMAN
CURHAN
FORD White Energy Company, Ltd. (WECFY) Buy

The African market represents a large opportunity for White Energy’s coal upgrading technology for sub-
bituminous coal reserves in that geography, in addition to opportunities related to utilizing discarded coal
fines. The White Energy briquetting process can also be used as a means of producing stable and transport-
able lump coal from unwanted undersized fractions of high energy bituminous coals in the region.

Projected Timeline for White Energy’s Active Projects

Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11

Tabang Ramping production Full Capacity

Buckskin Ramping production Full Capacity

Adaro Ramping production Full Capacity

Source: Company reports, MCF estimates

Other Opportunities for BCB

White Energy has signed a Heads of Agreement with Datang International Power Generation Company in re-
lation to the development of coal upgrading plants in China. To date, the company has not yet publicized any
specific projects that these two companies will be targeting for development. However, China remains a very
important strategic geography for the companies to pursue and we expect project announcements from this
relationship during the first half of CY09.

White Energy has also received increasing interest and approaches from a number of companies with regards
to using the company’s BCB process to upgrade lignite and sub-bituminous coals with the resultant upgraded
coal t be uses as feedstock for coal-to-gas (syngas) and coal-to-liquids (CTL) processes. White Energy has
indicated that it is reviewing its participation in a large coal to gas project under which it would design, con-
struct and commission a one million MT upgrading plant as part of the larger gasification facility. The com-
pany has not released many details of the project under consideration.

Balance Sheet, Earnings Model and Valuation

White Energy finished FY08 (June) with AU$35 million in cash and approximately AU$47 million in debt, in-
cluding AU$45 million of convertible notes issues in October 2007. In addition, White Energy maintains a
convertible funding facility with BHP Billiton Group which provides for a US$35 million, seven year unsecured
convertible funding and appointment of BHP Billiton as the company’s exclusive global marketing agent.
White Energy drew down US$10 million from this facility during February 2008.

In order to execute on its business plan, and to fulfill its obligations to the various plans underway, we are
looking for White Energy to raise additional capital over the next few years. Our model looks for production
volumes of 3 million MT per annum by the end of FY11. While the company’s transactions with Black River
and ASSAC should generate significant capital to fund the company’s current initiatives as well as new oppor-
tunities.

We estimate the company will earn AU$0.21 per share on net revenue of AU$87 million in FY11, up from EPS
of AU$0.01 on net revenue of revenue of AU$36 million in FY10. Applying a 12-15x multiple to our FY11
earnings estimate and discounting it back indicates a fair value for the ADR the US$7-9 range. Given the
company’s proprietary position, and the large and expanding market opportunity within the coal industry for
cleaner products, we believe this multiple range could be viewed as conservative. We are transferring cover-
age with a Buy rating on WECFY shares.

February 20, 2009 17


Next-Generation Energy
MERRIMAN
CURHAN
FORD White Energy Company, Ltd. (WECFY) Buy

Other Public Companies Mentioned in this Report


Prices as of February 18, 2009

Asia Special Situation Acquisition Corp. (CIO, $9.34, Not Rated)


Itochu Corp. ADR (ITOCY.PK $47.02, Not Rated)
NRG Energy, Inc. (NRG $19.68, Not Rated)

February 20, 2009 18


Next-Generation Energy
MERRIMAN
CURHAN
FORD White Energy Company, Ltd. (WECFY) Buy

White Energy Company, Ltd.


Balance Sheet
(AUD in thousands, except ratios)
FY07 FY08
CURRENT ASSETS:
Cash and cash equivalents 15,073 34,956
Trade and other recievables 3,338 5,100
Inventory 0 0
Total current assets 18,411 40,056

NON-CURRENT ASSETS
Property, plant and equipment 9,378 52,014
Exploration assets 2,374 2,581
Intangible asset, net 55,730 53,518
Total non-current assets 67,482 108,113
Total assets 85,893 148,169
CURRENT LIABILITIES:
Trade and other payables 7,959 29,786
Derivative financial instruments 465 0
Total current liabilities 8,423 29,786
NON-CURRENT LIABILITIES
Convertible Notes, 7.9% CP of A$3.44 0 47,388
Total non-current liabilities 0 47,388
Total liabilities 8,423 77,173

Net assets 77,470 70,996

Equity
Contributed equity 84,135 97,131
Reserves 4,441 2,866
Accumulated losses (12,151) (26,963)
Parent entitiy interest 76,425 73,035
Minority interest 568 (2,039)
Total shareholder equity 76,992 70,996

FY07 FY08
Current Ratio 2.2 1.3
Debt as % Total Capital 0.0% 40.0%
Net Cash per Share $0.13 $0.28
Book Value per Share $0.65 $0.56

Source: company reports and Merriman Curhan Ford & Co. estimates
Brion D. Tanous (310) 377-1289
btanous@mcfco.com

February 20, 2009 19


White Energy Company, Ltd.
FORD
CURHAN
Earnings Model
MERRIMAN

(AUD in thousands, except per share amounts) 2008A 2009E


H1A H2A H1E H2E
(Fiscal Year ends December) FY07A Dec-07 Jun-08 FY08A Dec-08 Jun-09 FY09E FY10E FY11E

February 20, 2009


Net Revenues (AUD) 1,303 1,239 2,749 3,988 961 14,891 15,852 35,903 86,954
Accounting and audit fees 228 24 238 262 50 250 300 400 500
Employee benefits expense 3,865 2,624 3,361 5,984 3,500 3,500 7,000 7,500 8,000
D&A 3,320 1,671 1,924 3,595 2,000 2,000 4,000 4,150 4,500
Finance cost 1 741 1,870 2,611 1,870 1,870 3,740 3,750 3,750
External advisory fees 2,682 1,637 2,266 3,903 2,400 2,650 5,050 5,300 5,800
Write-off of deferred exploration costs 0 0 0 0 0 0 0 0 0
Ocupancy expense 511 442 245 686 250 250 500 700 800
Travel 474 628 367 995 500 450 950 950 1,000
Other 828 163 805 967 800 500 1,300 1,000 1,000
Total operating expenses 11,909 7,928 11,075 19,003 11,370 11,470 22,840 23,750 25,350
Operating income (loss) (10,606) (6,690) (8,325) (15,015) (10,409) 3,421 (6,988) 12,153 61,604
Income Tax 0 0 0 0 0 0 0 0 0
Minority Interest 0 0 0 0 0 697 697 9,930 24,212
White Energy Company, Ltd. (WECFY)

Net income (loss) (10,606) (6,690) (8,325) (15,015) (10,409) 2,724 (7,685) 2,224 37,392

Earnings per share (basic and diluted) (0.09) (0.05) (0.07) (0.12) (0.07) 0.02 (0.05) 0.01 0.21

Basic and diluted share count 117,832 125,776 126,001 125,889 139,500 154,100 146,800 160,450 182,000

2008A 2009E
H1A H2A H1E H2E
Operating Ratios FY07A Dec-07 Jun-08 FY08A Dec-08 Jun-09 FY09E FY10E FY11E
Net Margin NM NM NM NM NM NM NM 6.2% 43.0%

Year/Year Change FY07A Dec-07 Jun-08 FY08A Dec-08 Jun-09 FY09E FY10E FY11E
Total
p Revenue
g NM NM NM NM NM NM NM 126% 142%
Net Income NA NA NA NA NA NA NA NM 1582%
EPS as Reported (Diluted) NA NA NA NA NA NA NA NM 1382%

Source: company reports and Merriman Curhan Ford & Co. estimates
Brion D. Tanous (310) 377-1289
btanous@mcfco.com

20
Buy
Next-Generation Energy
Next-Generation Energy
MERRIMAN
CURHAN
FORD White Energy Company, Ltd. (WECFY) Buy

February 20, 2009 21


Next-Generation Energy
MERRIMAN
CURHAN
FORD White Energy Company, Ltd. (WECFY) Buy

IMPORTANT DISCLOSURES
This research has been prepared by Merriman Curhan Ford & Co., a wholly owned subsidiary of Merriman Curhan Ford Group,
Inc. Some companies Merriman Curhan Ford & Co. follows are emerging growth companies whose securities typically involve a
higher degree of risk and more volatility than the securities of more established companies.
The securities discussed in Merriman Curhan Ford & Co. research reports may be unsuitable for some investors depending on their
specific investment objectives, financial status, risk profile, or particular needs. Investors should consider this report as only a single
factor in making their investment decisions and should not rely solely on this report in evaluating whether or not to buy or sell the se-
curities of the subject company.
Regulation Analyst Certification (“Reg. AC”)
All of the views expressed in this research report accurately reflect the research analyst's personal views about any and all of the sub-
ject securities or issuers. No part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific
recommendations or views expressed by the research analyst in the subject company of this research report. Research analysts are
not directly compensated for specific revenue generated by the firm’s investment banking transactions/activities.
General Disclosures
MCF & Co. expects to receive or intends to seek compensation for investment banking services for all of the companies in its re-
search universe in the next three months. Investors should assume that MCF & Co. is soliciting or will solicit investment banking or
other business relationships from the companies covered in this report in the next three months.
Security prices in this report may either reflect the previous day’s closing price or an intraday price, depending on the time of distribu-
tion. Designated trademarks and brands are the property of their respective owners.
Specific Disclosures
- MCF & Co. has not received compensation for investment banking services within the last 12 months, and does not expect to re-
ceive or intend to seek compensation for investment banking services in the next three months, from White Energy.
- Within the last 12 months MCF & Co. has not managed or co-managed a public offering for White Energy.
- MCF & Co. makes a market in WECFY and as such buys and sells from customers on a principal basis.
- Neither Brion Tanous nor a member of his household owns shares of WECFY.
- Neither MCF & Co. nor its officers, principals, employees, or owners own options, rights, or warrants to purchase WECFY.
- No MCF & Co. employee serves on the board of directors of White Energy.
- Neither Brion Tanous nor a member of his household serves on the board of directors of White Energy.
- Neither MCF & Co. nor its affiliates beneficially owns 1% or more of an equity security of White Energy.
- MCF & Co. has received an advisory fee for services as a Principal American Liaison (PAL) from White Energy to accomplish listing
on the OTCQX. We anticipate receiving additional advisory fees for this service.
Key to Investment Rankings (expected total share price return inclusive of dividend reinvestment, if applicable)

Percent of companies under research


coverage from which MCF & Co. re-
ceived compensation for investment
Percent of No. of
Rating Description banking services provided in the previ-
Universe Stocks
ous 12 months or expects to receive or
intends to seek in the next three
months

55% 54 MCF & Co. expects the stock price to appreciate


Buy 7%
10% or more over the next 12 months. Initiate or

MCF & Co believes the stock price is fairly valued


Neutral 40% 39 at current levels. Maintain position or take no ac- 7%
tion.

5% 5 MCF & Co. expects the stock price to depreciate


Sell 0%
over the next 12 months. Sell or decrease position.

MCF & Co. archives and reviews outgoing and incoming email. Such may be produced at the request of regulators. Sender accepts
no liability for any errors or omissions arising as a result of transmission. Use by other than intended recipients is prohibited.
The information contained herein is based on information obtained from sources believed to be reliable but is neither all-inclusive nor
guaranteed by Merriman Curhan Ford & Co. No independent verification has been made as to the accuracy or completeness of the
information. Opinions, if any, reflect our judgment at the time the report is first published and are subject to change without no-
tice. Merriman Curhan Ford & Co. does not undertake to advise you of changes in its opinion or information.
Member FINRA / SIPC. Copyright © 2009. All rights reserved. Additional information supporting the statements in this report is avail-
able upon request.

February 20, 2009 22