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ASX coal seam gas stocks offer loads of upside: Investor Webinar 2 August 2023
August 2, 2023
TMK, TMK Energy, WBT, Weebit Nano
In this week’s Investor Webinar we talk about ASX coal seam gas stocks:
- ASX coal seam gas stocks offer strong upside. There’s one stock in particular we really like in this space!
- We also briefly talked about the interview with Weebit Nano (ASX:WBT) that we just published.
Full transcription below.
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Marc: Hello, and welcome to Stocks Down Under. This is our weekly webinar. My name is Marc Kennis. Stuart is our other co-founder. Good afternoon, Stu.
Stuart: Good afternoon. I’m so glad to be recognized as your co-founder, Marc.
Marc: Absolutely. There’s no Stocks Down Under with you Stu, you know that, right?
Marc: Look, we will keep it really brief today. We just published an interview that we want people to have a look at with Weebit Nano. We published that this morning. I’ll briefly talk about that. And Stuart, you’ll be talking about coal seam gas. But first, let’s jump into Weebit Nano just really quickly.
Like I said, we recorded an interview with Coby, the CEO. We’ve done a whole bunch of these over the years. This one yesterday, we recorded yesterday. I thought it was really interesting because Coby actually sort of indicated, you know, as people know, you know, they plan to sign a new customer around the middle of the year. So, right about now, it’s taking slightly longer, and Coby explains why that is. But also the fact that they’re looking for multiple new customers if possible this calendar year still. So, that’s in the next couple of months.
In addition, he talks about revenues coming through, so he expects there’s a good chance that they’ll see maiden revenue in 2023, not big numbers, but you know, the start of revenues. I think that’s really important. And also, and this is what they announced yesterday morning. They qualified ReRAM, the technology at 125 degrees Centigrade. And that means that ReRAM is now also viable in applications like automotive, where the temperatures are typically higher than in other ReRAM applications, also for robotics industrial applications.
So, I think this is really important and the fact that the share price came down quite a bit yesterday on Tuesday, sort of goes against that actually. So, from where we’re sitting from a technology point of view, things are all moving in the right direction, especially with this qualification at 125 degrees. And Coby also talked about expansion of the team in certain areas. So, they recently hired someone in Israel. They, a couple of months ago, hired someone in the U.S. for business development. So, there’s a lot of stuff in this interview.
And so, take a look at stocksdownunder.com under the videos page and there’s a whole bunch more videos. Stuart’s on a number, we’ve done investor webinars like this one. They’re all up there. So, have a look at that because there’s a lot of information on there.
All right, that’s out of the way. Stuart, coal seam gas. You’re very bullish on gas, have been for a couple of years, but what’s so special about coal seam gas?
Stuart: So, coal seam gas is something we’ve talked about relatively regularly here at Stocks Down Under. It’s where you drill into coal seams and extract the methane content that’s trapped within those coal seams. The Soviet Union pioneered this form of getting energy way back in the 1950s. It’s now globalized. Admittedly, not the most politically correct form of energy. So, if you’re woke, block your ears right now because you might not like what I’m about to tell you. If you’re not woken, you want to make some money, pay attention because this is a great energy source in an environment where gas is really commercially attractive.
So, you drill into the coal seams and then you pump water out. And the reason is that water is pressurizing the gas, so it can’t rise to the surface. You reduce the water pressure, the methane can naturally flow up as you can see on the on the right-hand side of the screen. And the key word that people in coal seam gas talk about is critical desorption. That’s the point where there’s enough water going out of the coal seams, so the gas flows freely to the surface.
It’s not fresh water. It’s generally got a bit of salt in it. That means if you go out to the country, here in Australia, and talk to farmers about coal seam gas, they might get a bit weary because they’re concerned about salt water being dumped on their properties. It’s not like seawater. The level of salt is slightly higher, and you can treat that water to make it fresh. But the point is, there’s plenty of coal out there with methane in it that can be tapped in order to create viable sources of gas, and the technology around that is fairly well understood. So, there’s various ASX-listed companies going after billions of dollars worth of gas that you can buy for a fraction of that at the moment.
Why do you like it? Like I said, the pump water is treatable. One of the stricter environmental courts in the country is the New South Wales Land and Environment Court. October 2021, they ruled in favor of Santos, which is trying to develop a coal seam gas project in Narrabri, in the northwest of the state. Now, that’s telling you that coal seam gas is clean if you do it right. I don’t have to tell you the world needs the gas. Ever since the shooting started in Ukraine, gas prices have been reasonably steady and everyone wants liquified natural gas in particular because you’re moving from the pipelines. But gas as a great transition fuel until we move over to renewables, is a big deal.
So, here’s a few players that we like. Galilee Energy working on a play-up in Queensland, Elixir in Mongolia, Comet Ridge in Queensland, Kinetiko Energy in South Africa, we did a webinar on them about a year and a bit ago, Jade Gas in Mongolia. The chart for Elixir Energy tells you that when these things are hot, they’re really hot. So, when they first started proving up some resources, their stock ran all the way up to about 40 cents. They’re now down at 10. Some of the follow-on pilot wells haven’t been so great with this project, but it tells you that investors have become interested in coal seam gas plays in Mongolia.
And I want to talk about one in particular that I’ve just discovered that I think could be particularly valuable. And that’s TMK Energy, ASX: TMK, relatively recent entrant to the ASX, it only backed all listed a few years ago. They’re working on the Gurvantes 35 CSG project in Mongolia. All the coal seam gas in Mongolia is way down in the south, near the Chinese border, in the South Gobi Desert. Gurvantes is part of South Gobi province of Mongolia and this coal seam gas project covers some existing coal mines in the neighborhood. Brendan Stanson, some colleagues got hold of that project a few years ago. They’ve now proved up a contingent resource of about 1.2 trillion cubic feet of gas. That’s an extraordinary amount of gas. We’re talking billions of dollars worth of gas in the ground at the current spot prices for gas right near the Chinese border, where the demand for gas in China is very strong, and they attracted Talojn Energy, ASX: TPD, as a farm-in partner.
What’s to like about this company? And as I say, there are several coal seam gas plays in Mongolia. Mongolia’s a great place to do this because they’re not as worried about coal seam gas as you find in other jurisdictions like ours. Well, of all the companies I’ve seen, this one has the thickest coal seams where the gas content is the highest. The companies proved that by drilling seven wells funded by Talojn Energy into those coal seams, three of those wells have now been completed, and they’re actually flowing gas to the surface and flaring that gas.
And here’s the important point. Critical desorption pressure is approaching. When you flare a new well like this, you have to flare it and then it goes out for a while and then flare it again. When it flares around the clock, and that could be coming at the rate at which this seam has been dissolving, that could come in the next few weeks. Where they’re able to announce that they’ve reached critical desorption on the first well and that it’s flaring around the clock. When that happens, the intention is to plug that well straight into feeding a local coal mining operation. So in effect, you’ve got a commercial like coal seam gas play.
There’s a heck of a lot of scope to build out the quality of that. A 400 coal of pipeline would connect you into a major pipeline grid in China and unlock considerable market opportunities. It’s also worth noting that the gigantic Oyu Tolgoi copper mine in the same South Gobi region of Mongolia, the intention has always been to fuel that with renewables of some kind or at least gas. At the moment, they’re taking power from various sources, and potentially, they could black out the grid given the size of that mine. So, that’s a potential future customer of TMK Energy at some point.
So, investors sort of take a look because as you can see in the next slide, this stock has been building a good base around current share price levels of one and a half cents, or thereabouts, which is the level they raised capital at a year ago. It’s capping it at a mere 75 million. For a company with billions upon billions of gas in the ground that they’re getting close to being able to, to say is a real resource not just a contingent resource, that’s a big deal.
Marc: Right. And do you think they’ll need to raise more capital anytime soon, or do they have some runway?
Stuart: Basically, once they know they’ve got some runway, you know, they’ll have to work about funding sources to move faster on this one. But it’s fair to say as well, the market will respond because they’ll have discovered considerably ample resources of easy-to-produce coal seam gas, and there’s plenty of opportunities to unlock that. And of course, project financing will be involved in that as well. But the company’s got on its present run rate, the company’s got a very good run rate that lasts into next year.
Marc: Right. And what can go wrong for these guys?
Stuart: Well, it’s more a sentiment issue than anything else. Marc, what do you know about Mongolia other than the fact that Genghis Khan came from there in the 13th century?
Marc: Oh, it’s got yaks over there, that’s one thing. But yeah, there’s not a lot of people there, right?
Stuart: But people do not know much about Mongolia. The population’s about 3 million people. Economy’s doing reasonably well. There are better levels of governance and less corruption than used to be the case, and it’s open for business as far as foreign operators including those from Australia are concerned.
But because it’s Mongolia, and I don’t know anyone who’s ever been to Mongolia…sorry, I know one guy who lives inl Ulaanbaatar who’s a friend of mine, but most people don’t know much about Mongolia, so they presume it’s a dangerous place to do business. So, I think it’s a sentiment issue more than anything else. And once the companies overcome this sentiment problem, and it’s not just TMK that’s dealing with that, it’s also Jade Gas and Elixir, there’s plenty of room to rerate.
The second sentiment issue is try going to a cocktail party in the past of Sydney where we live in and admitting to people that you’re interested in coal seam gas, they might look at you like you’re Darth Vader and distance themselves from you. So, it’s unfashionable in certain circumstances to invest in this sort of stuff. And so, I think those are the two issues I’ll be battling.
Marc: All right. But purely from a technical point of view, you mentioned the technology is pretty well understood, so it’s more of a operational risk that is probably the most prominent of all the risks out there.
Stuart: Yeah, so basically, they’ve shown that the gas is down there, they’ve been able to flow that to surface. It’s just a matter of executing properly to show that they’ve reached critical desorption, I should say, on those particular seams.
Marc: All right. Good stuff. Thanks, Stu, and that’s it for this week. Thanks, everyone, for watching, and we’ll see you next week.
Stuart: See you soon.