Elixir Energy - Technical Analysis

Elixir Energy Limited is an Australian gas exploration and development company, which is focused on its exploration and appraisal Nomgon IX CBM PSC program in Mongolia which targets natural gas in the form of coal-bed methane (CBM) and its green hydrogen project, the Gobi H2 project.  

Merlin Marr-Johnson sat down with the Chief Geologist of Elixir Energy Limited (ASX: ESR), Greg Channon to discuss the technical aspects of the company’s exploration and appraisal Nomgon program in Mongolia.  

Company Overview

The Nomgon IX CBM PSC project of the company is a large coal deposit located on the border between Mongolia and China. The company has had a production sharing contract (PSC) with the Mongolian Government since 2018, with the PSC consisting of a minimum exploration period of ten years with a production period of thirty years which has the potential to be extended.

Elixir Energy Limited was awarded the Investor of the year award by the Mongolian Minister of Mining and Heavy Industry in 2022. The award was given to recognise the company’s efforts in continuing with the Nomgon IX CBM PSC project’s exploration throughout the Covid pandemic. The company recently announced the results of its 2021 exploration drilling program. The 2021 exploration program was able to intercept coal mineralisation in 65% of the exploration holes drilled.

The company had a cash reserve of $28.4 million with no debt at the end of 2021 and spent $1.8 million on exploration activities in Q4 of 2021. The exploration activities were primarily drilling, seismic processing and ancillary costs.

The Nomgon IX CBM PSC project boasts energy-dense coal deposits, which may lead to lower production costs. The Gas saturated coal seams may also lead to a much lower cost of water handling in future pilot and production stages.

Elixir Energy Limited has entered into a memorandum of understanding (MOU) with the Mongolian Green Finance Corporation and plans to continue the exploration of the Nomgon IX CBM PSC project in 2022 with a pilot program and 24-hole exploration program scheduled. 

The company believes that its Mongolian projects hold great promise and advantages for not only the company and Mongolia but its surrounding countries as well.

The Nomgon IX CBM PSC

The Nomgon IX CBM PSC project is located on the Mongolian / Chinese border, approximately 400 km North of China’s main gas transmission grid. The project licence area covers roughly 30,000 km2, which is equivalent to the size of Belgium. The Nomgon CBM PSC deposit holds between 7.6 trillion cubic feet (Tcf) and 14.6 Tcf. The Nomgon CBM PSC project aims to produce liquified petroleum gas LNG to the European and Asian markets.

The Nomgon IX CBM PSC project has access to infrastructure which includes power lines, roads and rail and truck transportation. The project’s vicinity to various towns also adds the advantage of a ready workforce. The project is well poised to supply the increasing need for cleaner forms of energy in China, which is aiming to move away from coal as an energy source in the future.

The project boasts as being the first coal seam gas (CSG) discovery in Mongolia, with intersections of coal up to 71 m. The average raw gas content of the main seam has been measured to be 5 m3 per ton, with analysis showing the main seam to be fully gas-saturated.

Elixir Energy has recently concluded with its 2021 drilling program. The exploration drilling program intersected coal mineralisation in the coal-bed methane (CBM) window in 65% of the exploration holes drilled.

The Nomgon IX CBM PSC project is similar to various liquified natural gas projects on the coast of Australia, with the exception of its mineralisation. The project boasts a coal resource which is estimated to be much more energy-dense per km2 than any other CBM project of Australia. The higher energy density of the deposit will lead to a lower cost per Gigajoule (GJ) produced. The lower cost of water associated with operations due to the project’s mineralisation also serves as an advantage the project possesses over its peers.

The company has held a production sharing contract (PSC) with the Mongolian Government since 2018. The PSC has a minimum exploration period of ten years with a production period of thirty years which may be extended. Elixir Energy is currently ahead of its exploration expenditure commitments under the PSC, even though the unplanned COVID-19 pandemic.

The Gobi H2 project

The Gobi H2 project of the company is a green hydrogen production project, also located in Mongolia. The company believes that Mongolia is one of the best locations in the world to produce hydrogen, in part due to its proximity to the large Chinese hydrogen market. The Gobi H2 project will be able to deliver green hydrogen via pipeline to China. The transportation form is much lower in cost than traditional transportation methods such as a boat.

The company plans to implement solar energy at its Gobi H2 project and has recently acquired the 50 MW pre-development Solar Ilch solar farm project for consideration of 720,000 ordinary Elixir shares.

Elixir Energy has recently executed a memorandum of understanding (MoU) with the Mongolian green finance corporation. The Mongolian green finance corporation is a joint public-private sector body. The MoU will see the parties cooperating in firstly identifying Mongolian carbon offset opportunities at the household level.

The MoU will secondly aim to develop larger-scale forestry and nature-related emission offsets in Mongolia. The offsets will assist in the production stage of the project.

The MoU also enables the collaboration with various International Financial Institutions (IFI’s) in Ulaanbaatar with regards to the project’s financing.

The company has recently announced a pilot project, to be run by GPA engineering, which will supply green hydrogen to Inner Mongolian steel mills in China. The company’s internal desktop studies of the Gobi H2 project has shown substantial saline water sources which are available in the South Gobi region, with experts engaged by the company to provide inputs regarding water supply issues, technical aspects and provide a roadmap for approvals.

2022 plans

The company has recently announced that it has commenced with its 2022 exploration and appraisal drilling program. The program has been initiated with the spudding of the Tim-1S exploration well, which is situated south of the Tavan Tolgoi Coal Mining area. The Tim-1S exploration well has been drilled to target Jurassic and Permian coals and has a planned total depth of around 700 m.

The Tim-1S exploration well is the first of exploration holes that the company has planned for its 2022 exploration and appraisal program. The exploration and appraisal program will be completed by three separate drilling companies.

Elixir Energy also plans to launch an extended pilot program in the middle of 2022 which will comprise two production wells. The gas and water production of the pilot program is scheduled to be in operation for a maximum 6-month period.  The two production wells will be spaced 100 m apart with a 450 m depth to the coal deposit. The company plans to monitor the pressure of the production wells through two pressure monitoring wells planned to be 110 m and 400 m along strike.  The company has further started to expedite the process with its long lead items necessary for the pilot program already being ordered and en route to Mongolia.

The coming year will be of paramount importance for Elixir Energy. The planned pilot program will affirm the commercial potential of the deposit and will enable the company’s planned gas-fired generation project in the Nomgon area. 

To find out more, go to the Elixir Energy website