Last Thursday’s drilling update on Ugtaal-1 was disappointing....

Last Thursday’s drilling update on Ugtaal-1 was disappointing. It would have been good to find out more technical details of the tests conducted. Permeability was the big unknown IMO, so I was taken aback that the gas content of the coal was lower than expected (cores obtained from Tavan Tolgoi were promising). A positive take away from the drilling is that we know there are thick coal seams at optimal depth within the PSC. The learnings they now have are invaluable for future drills.

The nature of frontier CSG/CBM exploration is that a number of holes need to be drilled and of course not all of them are going to come through with the goods. Early CSG plays are not without their ups and downs along the way, look at the initial pioneering work of QGC. Advanced technology is making it easier these days.

Glad to hear in the announcement that they are moving to a new sub-basin with different underground conditions and have submitted 2020 drilling plans to the regulator post Nomgon-1, drilling that will be dynamic much like the current program.

The 2D seismic they have undertaken in the Nomgon area should have given them an indication around coal seam thickness at depth. Their field work has shown ‘thick out-cropping coal seams that demonstrate good cleating and coal quality to the naked eye.’ I don’t believe Ugtaal-1 had such coal outcropping.

I understand that the current drill is in the area of the Tsagaan Tolgoi coal outcrop. The coal in the area has promising characteristics according to my research. Curious that no map has been provided.

These surface outcrops in the Nomgon IX PSC have remained unexploited to date, there is a concerted effort by the Mongolian Government to shift away from coal mining towards cleaner energy solutions. Mongolia is abundant with coal, our PCS probably being the most coal prone in Mongolia (Tavan Tolgoi is one of the world’s largest coal mines), accordingly CSG is a logical development towards cleaner energy for Mongolia.

IMO at this stage the big question is if the permeability and gas content are going to be at economic levels, being 37km away in the new sub-basin. Coal cores taken from Tavan Tolgoi (approx. 60km away from Ugtaal-1) showed gas up to 15m3/tonne (QLD CSG fields have 7-14m3/tonne in most productive areas). Encouragingly south of the border from our PSC is the Ordos Basin where a number of CSG projects operate successfully.

Hopefully EXR’s quarterly report to be released by the end of this month can provide some further insights into the results thus far and outline the current cash position. I’ll be keen to read the Managing Director’s Report to Shareholders too.

GLTAH on the Nomgon-1 drill.