MPO 0.00% 14.0¢ molopo energy limited

MOLOPO , DD TOLLHURST broker recommendation !

  1. 1,250 Posts.
    time will tell, but we almost prove right !
    the 12 cents was a chart sell signal
    by the way Tollhurst is or was the broker of Molopo !
    D & D Tolhurst Report

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    MOLOPO AUSTRALIA NL
    Resource appraisal company
    ASX Code: MPO
    Price: $0.12February 2000
    Sector: Junior Explorer
    Analyst: Sharif Oussa

    Cashed up, and with an accelerated focus on Asia, Molopo is to undertake resource exploration and appraisal over its recently acquired interest in the advanced, and possibly extensive coal bed methane (CBM) project at Liulin in China. In addition, appraisal of its highly developed gold properties in Korea will continue.

    With the scheduled exploration and appraisal timetable to be undertaken, we see considerable value being added to the Molopo's assets, if successful, and hence a substantial appreciation in the share price should result.

    Shares on Issue:
    Options (20c by 31/9/03)
    Market Capitalisation: 168.4 m (post placement)
    40.0 m
    $20.20 m 12 Month Range: $0.15-$0.03

    Background and Summary

    Molopo Australia began as a Melbourne based company involved in Botswana with platinum and diamond exploration and later, copper exploration in Mongolia.

    The company was formed in 1986 under the sponsorship of Paringa Mining and Exploration Company Plc and the Southern Prospecting group to acquire mineral exploration interests from both companies for a total consideration of $6 million. In November of that year Molopo made a public issue to raise $9 million.

    Following promising but ultimately uneconomic results in Botswana, the Company acquired a large copper deposit in Mongolia which is awaiting a better trend in copper prices before development.

    More recently the company has acquired the Liulin CBM project from Hedong Energy Inc. after the issue of shares for consideration of the 100% owned Lowell Petroleum. In addition Molopo has issued shares as a consideration for the acquisition of the Yak50 Gold Mining NL.

    The company's current cash position provides it with the necessary capital to begin the substantial resource appraisal programs over its Asian properties, in particular at Liulin.

    Corporate

    In February 2000, the company completed a placement of 15,000,000 fully paid ordinary shares at a price of $0.085 per share payable in full on application to raise $1,275,000. The issue has been undertaken on a best endeavours basis by D&D Tolhurst Ltd for a fee of 5% of the total funds raised for those shares placed.

    The purpose was to continue with the exploration, appraisal and development of the Liulin coalbed methane (CBM) project in China, and several gold appraisal projects in the Democratic People's Republic of Korea. These assets complement the company's already Asian focus with its copper- gold porphyry property in Mongolia. In addition part of the funds will be put towards reducing debt and allowinq other investment opportunities to be assessed, as well as to provide working capital.

    Liulin Coalbed Methane

    Molopo owns 100% of Lowell Petroleum (China) which holds the Liulin contract over a CBM project in the Ordos Basin, of Shanxi Province, some 500 km southwest of Beijing, China.

    Results from three wells drilled within the 214 square km contract area and from numerous other coal boreholes, indicate, coal layers with thicknesses of between 9 - 16 metres. Gas contents have been recorded of 8 - 22.4 cubic metres/tonne, with permeabilities of up to 24.8 millidarcies.

    Although these preliminary exploration results could indicate coal reservoirs that could produce commercial gas flows, further wells will need to be drilled and must be successfully flow tested.

    Molopo proposes a 5 well drilling program within its field to obtain a better understanding of anticipated flow rates and recoverable reserves. Molopo is targeting reserves of 0.5 - 1.0 trillion cubic feet of gas.

    Some Background on CBM...

    CBM is a global energy resource of rapidly expanding importance. At present, large-scale commercial developments of CBM are.being undertaken in the U.S and CBM technologies are being applied in a number of countries Including Australia and China.

    In the USA today, CBM is a significant component of the overall gas supply. A total of 30 billion cubic metres of CBM was produced from more than 8,000 wells during 1997, accounting for more than 6% of the total US natural gas production. Investments in CBM in the US have exceeded $5bn, and at current wellhead prices of $2/MMBtu, the CBM industry grosses US$2bn in annual revenues.

    Initially, CBM was developed as an innovative method for degasification methods for coal mines, but today most drilling has moved to deeper and un-mineable seams. In the USA, large-scale CBM developments began in the San Juan and Warrior Basin's during the late 1980's, followed by the Uinta, Ratoon, Powder River Basin basins in the West and Central Appalachian Basin's. With such developments, one of the areas targeted for CBM development has been China, in addition to Australia.

    ...In China

    Today, China, along with Australia is regarded as one of the most promising areas for development, and has become a focus of CBM testing activity.

    Large US companies such as, ARCO, Phillips and Texaco have signed production-sharing agreements for coal bed methane with the Chinese government. These companies are experienced in producing CBM and are implementing well testing programs that should finally define the productive potential of the Chinese resource base, especially in ground surrounding Liulin. Joining these US majors in China is the Australian listed Molopo Resources through its 100% owned Lowell Petroleum.

    The Chinese CBM resources are estimated to be vast, at least 500 to 1000 TCF. The risks associated with CBM development in China include understanding the complex reservoirs, restricted permeability and little infrastructure.

    The development of CBM is apparently high on the agenda of the Chinese government because of its ability to help reduce pollution, as a result of degassing, and reduce the dependence on coal fired powered power- stations for electricity.

    The Project Itself

    The Liulin project is contained on the eastern margin of the Ordos Basin, China's largest basin and offers favourable reservoir conditions for CBM. The basin apparently resembles the San Juan Basin (the most prolific CBM gas producer in the US) with coals at depths of around 650 metres. However, at the perimeter, in particular the eastern one which is also known as the Hedong Fairway, CBM development is especially favourable because of suitable structure and coal thicknesses. Accessible CBM resources from Permian coal measure in the basin are estimated to be 50 to 100 trillion cubic feet (Tcf). Deeper Jurassic coal targets could add to this. Presently, Molopo are in advanced negotiations with the Chinese government to convert the expired Liulin contract to a project which is fully approved for CBM exploration, appraisal and development. A production Sharing Contract ("PSC") is being finalised with China United Coalbed Methane Co. Limited ("CUCBM"), a special purpose company established by the Central Government to develop (as a matter of priority) a CBM industry in China (in co-operation with foreign partners). The terms of the draft PSC require Molopo (via LPNL) to progress the Liulin project by funding 100% of a US$1.2 million appraisal program over the next two years to whether or not a commercial project could be developed at Liulin.

    Past Work and Exploration

    Over the last few years and under a separate agreement with the Chinese authorities, Lowell Petroleum funded 70% of an agreed exploration and appraisal (pilot development) program in return for a 50% contributing and participating interest in any commercial development.

    Three wells in the northern half of the Liulin contract area have been drilled, testing seams 4 and 8 for permeability, in situ stress, gas content and other coal and reservoir parameters. Permeability as measured by down hole testing of the wells drilled to date is generally encouraging at 13.5 and 24.8 millidarcies (mD).

    Overall, results to date characterise the Liulin Contract area as prospective for development of CBM, given favourable economic factors such as infrastructure and gas price. While there appears to be a sufficient CBM resource in-place at Liulin, the next phase of work must establish whether the gas can be extracted at a sufficient flow rate and with low enough operating cost to be commercially competitive with other energy supplies in China.

    Potential Markets for Liulin CBM

    A new 864 km gas pipeline serving Beijing from the Ordos Basin passes the northern border of the Hedong Fairway, some 200 km from Liulin, while the major city markets of Taiyuan and Xian are 200 and 380 kilometres respectively away. As with other major development projects in China, State authorities might construct the necessary infrastructure, if sufficient reserves and deliverability can be established in and around Liulin.

    With recently newly signed contracts with the Chinese Government, Molopo's neighbours, Texaco, Arco and Phillips have commenced ambitious CBM testing and evaluation programs of coal seams in their ground.

    What is Coal Bed Methane?

    CBM is gas derived from the coalification process by which peat and organic matter, over geological time, is turned into coal through the effects of compaction and heat. The gas formed is similar to the natural gas found in conventional sedimentary formations, except that CBM forms in-situ whereas in traditional hydrocarbon accumulations, the gas has usually migrated into the sandstone reservoir from a source (sometimes coal) elsewhere in the geological succession.

    The methane trapped in the coal layers is adsorbed directly onto the coal surface (cleats or joints) or micropores. This gas is then held in place by the reservoir (water - hydrostatic) pressure.

    Because the micropore surface area is very large, coal can potentially hold more methane per unit volume than most conventional sandstone reservoirs. However, coals generally have far lower permeabilities, thus making it much harder to liberate the methane from the coal seams, than is the case with conventional, non-coal reservoirs.

    What is Permeability?

    Permeability is the ease by which a fluid or gas can move through a substance. Because coals have a lower permeability than sandstone, it is far more difficult to tap the seam with a single well or series of wells, and deliver a constant (and commercial) gas flow, than from a normal sandstone reservoir. Hence the need for closely spaced wells and the use of improved permeability techniques.

    How Will Molopo Increase Permeability?

    To increase the deliverability of gas from the coal measures, the coal seams must be stimulated to create artificial, but permanent, enhanced permeability. This is done by hydraulic fracturing, 'fraccing', or cavetating. Fraccing pumps, under high-pressure, large volumes of water and sand into the coal seam. Additional fractures develop, beginning at the well bore, and extend outwards in opposite directions for distances of up to 400 metres. The sand deposited in these new fractures prevents the fractures from closing when the pressure is released. The sand filled fracture becomes a conduit through which the gas can move to the wellbore and then be extracted to the surface. Cavetating is where a large cavity is formed at the base of a well, such that gases can accumulate there and are then tapped off for use.

    Molopo's North Korean Gold Projects

    In North Korea, Molopo through its wholly owned subsidiary Yak 50, has entered into a 50 -50 joint venture with the Korea Hungsong Economic group to explore for, and exploit, a number of gold projects within the country.

    These include; tailings dumps, hard rock gold deposits, rights to operate a low-grade gold concentrate (<16 g/t) processing plant; and on-shore and marine alluvial gold deposits.

    Molopo believe the projects offer the potential for relatively short-term cash flows, perhaps through the short- term development of a processing plant to treat low grade concentrates,

    Danchon Gold Tailings Dump

    This dump is located on the east coast of South Korea and is estimated by Yak management to contain approximately 18 million tonnes of gold bearing tailings with a cyanide extractable of 0.8 g/t. It has been drill tested by Yak using an imported Australian drill rig and preliminary assay and metallurgical testing shows considerable promise.

    Suan Gold Tailings Dumps

    The Suan dumps are approximately 80 kilometres east of the capital Pyongyang. Based upon assay testing by Australian Laboratory Services Pty. Ltd. and by Genalysis Laboratory Services Pty. Ltd., Yak management estimate the dumps to contain approximately 6 - 10 million metric tonnes of gold bearing tailings.

    Valley of Gold

    A hard rock project area, north of Danchon, this region hosts a complex structural corridor that includes en-echelon gold mineralisation and a number of known ore deposits.

    Low-Grade Gold Concentrate Processing. Molopo and Korea Hungsong have acquired the necessary Government approvals to purchase and process low-grade gold concentrates in country.

    On-Shore & Marine Alluvials on East Coast. A 65 square kilometre production licence for marine placer gold in Ham hung Bay has recently been expanded through the acquisition of another 25 square kilometre on-shore license in the region which could facilitate the production of alluvial gold.

    Mongolian Copper

    Molopo also maintains a 65% interest in the Tsagaan Suvraga copper deposit where a resource of 240 million tonnes grading 0.53% copper and 0.018% molybdenum has been identified. Significant exploration and metallurgical work has been carried, and early feasibility studies indicate that while a project may be profitable at today's low copper price, higher commodity prices would justify its development in the future or better returns.

    Molopo has the right to explore and develop this deposit contained within an exploration license of 174 square km. In addition there is an oxide copper zone containing some 10 million tonnes at 0.42% copper.

    Since being granted the original exploration licence in 1995, Molopo has undertaken various programs to evaluate these deposits, in particular Surven Sukhait, the second largest known copper deposit in Mongolia.

    A feasibility study concluded that a viable project was possible on the basis of known reserves and assuming a production rate of 10 tonnes of cathode copper per day at the then prevailing copper price of US$0.85/lb Cu. At the current level of US$0.75lb of copper, the project still produces a positive, although less attractive return. Molopo will progress the project in order to refine the design work and review ways to improve the economics so that once copper prices are more a decision can be taken on development and commercialisation.

    Other Projects and Interests

    Via the acquisition of LPNL Molopo has also acquired a 16.7% contributing interest (10% net) in Petro-Russo L.C., a Louisiana (USA) company that holds 42% of a new joint venture company that in turn owns 79% of the ordinary shares of Pechoraneft, a privatised Russian oil exploration, development and oil services company.

    Pechoraneft holds a license over the Sredne Kharyaginskoye field (early Russian estimates suggest 40mm bbls reserves) and has claims over two other undeveloped oil fields in Russia's Komi Republic. The Sredne field is partially developed and is well located with respect to export infrastructure.

    Molopo also receives royalties on gold production from the Peak Hill, Gold Mine, New South Wales, and from the Moyagee operation in Western Australia.

    Molopo owns and operates twelve other exploration tenements in Australia, prospective for gold and base metals.

    Management

    David William King B.Sc (Hons.).M.Sc., Ph.D., FAIG, FAuslMM - Chairman

    Dr. King is the Chief Executive Officer of Hedong Energy Inc. the former parent company of Lowell Petroleum

    NL. He joined Molopo in 1999 and is a geophysicist and natural resources specialist with management (corporate, exploration and consulting) experience spanning the oil and gas, gold and coal industries. He was formerly CEO of Beach.Petroleum N.L., Claremont Petroleum N.L. and North Flinders Mines Ltd. He is a past president of the Australian Society of Exploration Geophysicists and is a Director of Southern Equity Holdings Limited and Minerals Corporation Limited.

    Stephen P. Mitchell B.A., M.A (Intl. Eco. & Pol.) - Managing Director

    Stephen Mitchell was appointed a director of Molopo on September 23, 1999. He has 12 years experience in the international resources industry in various capacities including finance, managerial and advisory positions. After completing his M.A. in International Economics and Politics in the USA, he spent 2 years in New York with a major US investment bank specialising in international resources. Later he established the corporate advisory division within the Lowell Group again concentrating on the resources sector. During that period he was seconded to assist in the management of several Lowell Group investments including Hedong Energy and Molopo.


 
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