Elixir continues to deliver, consolidating its near 20 bagger status

By Trevor Hoey. Published at Apr 7, 2021, in Energy

Amid a number of other important developments Elixir Energy Limited (ASX:EXR) has booked its initial contingent resource for the Nomgon IX CBM PSC in Mongolia.

This is not only the company’s maiden resource report, but it is the country’s first, providing growing confidence in gas supplies for the project.

Other key developments that emerged today were news regarding support from Mongolia’s Ministry of Energy and the engagement of Clarke Energy for work on the feasibility study.

It is difficult to believe that it is 12 months to the day since Elixir was trading at 2 cents - on that basis, this morning’s high of 36.5 cents represents year-on-year share price growth of 1725%.

Government support eases the journey from exploration to development

Government support is extremely important in terms of gaining approvals and permitting, while news that the company is making progress, with the feasibility study is a positive sign given that this will be one of the major market moving events in the near to medium-term.

What to look for next

Australia’s own history of CBM (known as coal seam gas – CSG – in Australia) development has had very close synergies with modular gas fired power projects.

These can be expanded as gas resources are proven up, a potentially market moving event that is on the horizon with the Nomgon Project.

Numerous projects have been built in Queensland (and even New South Wales) over the last fifteen years ago, by parties including QGC, Santos, Arrow Energy, Eastern Star Gas and Origin Energy, which facilitated their initial entry into CBM development and production.

The multiple benefits of these projects included providing early cash-flows, utilising raw gas that does not need processing, building confidence in gas deliverability and reserves, attracting larger energy sector partners and improving grid reliability.

Factors such as these make Nomgon a very compelling project for Mongolia and even beyond its borders as China looks to reduce its carbon footprint.

Elixir’s managing director Neil Young pointed to a number of upcoming key developments in saying, “Elixir’s directors have considerable experience in CBM to power projects in Australia and consider that there is an excellent fit for such projects with the stage we have now got to in Mongolia.

"We now look forward to working with the Mongolian Government and Clarke Energy to pursue the development of Mongolia’s first gas fired power station.

"Our initial Contingent Resource booking – the first of its kind in the country – is focused on supplying this project.

"Our “rinse and repeat” model for the identification, appraisal and then production of CBM in the vast Nomgon PSC area has received major validation with this key milestone and the plan is to repeat it time and time again.”

Engaging Clarke Energy enhances efficient execution

Harking back to Australia’s experience with CBM, we see the engagement of Clarke Energy as an important development.

While executives are the face of the company, it is the expertise of those enterprises and personnel at the coalface that determines the news conveyed, and indeed the success of the company.

In Australia, Clarke has conducted the delivery of EPC work (engineering, procurement and construction) for over 24 separate CBM/coal mine methane based power projects, totalling around 300 MW of installed power using INNIO Jenbacher gas engines.

In China, Clarke has also previously undertaken EPC work with various similar projects, totalling 61 MW.

To put the engagement of Clarke into perspective, it is useful to examine an example of the group’s work in a key Australian project.

A comparative example highly relevant to Elixir comes from the early days of Australian CBM development in 2008 when Clarke Energy constructed the Wilga Park Power Station in New South Wales.

This power station was built in stages, maximising pilot CBM gas as it became available.

Clarke Energy initially performed the EPC work for the first stage 3 MW plant and expanded it to 12 MW in 2011, which has since operated smoothly for 10 years.

In more recent times, this power station has been further expanded to 18 MW, with the capacity and design for further growth.

The ability to build a staged project that minimises capital expenditure during early stages when revenue from output is more constrained, and then building towards a much larger operation as cashflow allows and demand ramps up will be very advantageous to Elixir.

Similar to projects like Wilga Park, Elixir plans for this initial power station project to be around 10 MW in initial size, reflecting factors such as the current local electricity transmission grid take-away capacity and an overall measured approach to what would be the a first of its kind development in the country.

The project would be expandable in nature as factors such as takeaway capacity increase.

Commenting on his company’s scope of work at Nomgon and highlighting his past experience, Clarke Energy’s chief executive Greg Columbus said, “We are pleased to be engaged by Elixir Energy to work on an initial feasibility study for the Nomgon Power Station Project.

‘’Although the first of its kind in Mongolia, it is of a type we are very familiar with over many years in Australia and in Mongolia’s Southern neighbour.

‘’We have worked with a number of Elixir’s directors before in various projects and look forward to doing so again”.

Establishment of a contingent resource facilitates de-risking

In order to provide confidence in gas supplies for the potential third party financiers for the project, Elixir commissioned an initial independent Contingent Resources estimate.

The Contingent Resources estimate, specifically around the work undertaken to date in the Nomgon sub-basin area, was undertaken by ERC Equipoise Pte Ltd and the results are summarised in the table below.

The Contingent Resources have been booked only for the initial selected gas supply area for this power project – the western part of the Nomgon sub-basin in which the company drilled a number of wells in 2020.

The initial 2C resources as noted below are more than sufficient to provide gas for the expected effective life of the power plant.

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