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  • Liberty Resources Aiming To Tap East Australian Gas Boom With Low Cost Gas 0 comments
    Apr 3, 2013 8:10 PM

    Liberty Resources Limited (ASX: LBY, OTCBB: LYRTF) is developing an unconventional gas project in Australia that will convert un-mineable coal into pipeline quality gas, which can then be value added by producing low cost ammonia and urea fertiliser.

    Key Investment Points:-

    - Liberty has identified unconventional in-situ Syngas resource potential of 9,300 PJ equivalent within its Central Queensland tenements that are amenable to Liberty's enhanced, in situ coal gasification.

    - There is a shortage of natural gas looming within the Queensland gas market as LNG exports are projected to reach 2,300 PJ by 2021.

    Eastern Australian gas buyers are already reporting an inability to secure future contracts for 718 PJ of gas per year required for local consumption.

    - This is forecast to drive local natural gas prices from a current range of $6 to $8 GJ to $7.5 to $12 GJ by 2020, and open up the development pathway for Liberty's massive Central Queensland gas and fertiliser project.

    - Liberty is proceeding with a two stage development program that will produce low cost Syngas from resources at the Victus project area at an estimated cost of $1.5 billion, and a second stage fertiliser project at a cost of $2.3 billion.

    - Early technical studies indicate a robust return of 22% per year on sales of pipeline quality gas from the intermediate stage gas plant.

    This significantly de-risks the project, cuts the developmental timeline, and capitalises on the current boom for local gas needs and supply for LNG for export.

    - Technical studies on the second stage fertiliser project indicate that with a life that exceeds 50 years is capable of producing 2.0 million tonnes per annum of urea, and produces a current Net Asset Value that falls into a range of $0.28 to $2.28 per share, and free cash flow exceeding half a billion dollars per year.

    - Liberty has already secured a Letter of Intent with Marubeni of Japan, and is proceeding with studies for production of 1 million tonnes of urea and 1 million tonnes of ammonia per year for a term of 25 years.

    - The Marubeni LOI partially de-risks the project.

    - Liberty also waits Queensland Government approval to proceed with its UCG project and is expected to provide a very significant value driver in 2013.

    Share Price: $0.052
    Issued Shares: 267.3 million

    Market Cap: $13.8 million
    Cash: $2.0 million


    Most Australian investors are familiar with the shut-down of the underground coal gasification project near Kingaroy.

    The Queensland Government took this action because the project contained wells that were sited within an area of structural complexity and, being close to the land surface, had potential for local groundwater contamination.

    This issue has no relevance at Denison and Victus which are like traditional oil and gas resources that are separated by hundreds of metres of aquitard layers that limit the release of hydrocarbons.

    The coal deposits located at great depths can be gasified via a complex set of chemical reactions in the presence of the suitable conditions of pressure, temperature, and an adequately constructed wellbore system, with proper completions in place and a detailed monitoring array.

    The Syngas is produced through the production well up to the surface equipment for further processing.

    Operating the production cavity at a slightly lower pressure than hydrostatic ensures that the pressure gradient is always towards the cavity thereby limiting damage to local aquifers.

    The Queensland Government has already approved development of uranium mining, shale oil development and is expected to approve UCG development in the near term, with confirmation that adequate environmental safeguards are in place.

    Liberty's enhanced process may also be capable of providing benefits for nearby coal seam gas operators;

    - salt water disposal;
    - CO2 enhanced recovery for CSG;
    - Electricity for CSG operators.

    Denison and Victus may prove to be suitable disposal sites for saline water produced by nearby coal seam gas operators.

    Liberty plans to use either this water, or other non potable water in its process via injection wells with steam, CO2 and oxygen.

    The valuable Syngas is produced from the steam and oxygen interacting with the coal, and Syngas and steam is recovered via collector wells.

    The salt crystallises and remains permanently trapped deep underground and essentially replaces the coal seam.

    CSG operators use their own gas to drive the CSG well pumps. By converting to the lower heating value Syngas from Liberty, approximately 10% more gas could be available for sale by CSG operators.

    Based on stated resources, this could increase CSG operator gas reserves by up to 5,000 PJ on the stated CSG inventories in QLD, worth an estimated $16 billion on current gas contract prices.

    The following table puts this 5,000 PJ (approximately 5 TCF) CSG reserve enhancement opportunity into some context.

    Project Resource
    Gorgon 50 Tcf1
    Wheatstone 9 Tcf2
    Browse LNG 15.5 Tcf3 dry gas and 417 MMbbl3 condensate
    Pluto LNG 5.25 Tcf4 dry gas
    Sunrise LNG 1.7 Tcf5 dry gas and 75.6 MMbbl5 condensate
    Scarborough Development 8 Tcf6 gas
    Moomba 1P 1.5 Bcf7, 2P 3 Bcf7, 3P 7 Bcf7 gas
    Liberty 2 Tcf8 gas

    1) Total potential recoverable natural gas resources
    2) Discovered resource (recoverable resources as defined in the supplement to the 2012 annual report) in Wheatstone and Iago gas fields
    3) Contingent resources
    4) Pluto and Xena gas fields estimate to contain 5 Tcf of dry gas reserves and additional 0.25 Tcf of contingent resources
    5) Contingent resources 1,717 Bcf dry gas and 75.6 MMbbl condensate
    6) Probable reserves
    7) Moomba Shale first reserve bookings from Moomba 191 well, Ultimate Recovery numbers
    8) Victus site

    The CO2 captured from Liberty's gas plants may be used for re-injection by CSG operators with the objective of enhancing CSG yields and production.

    Coal seam gas production in Queensland has soared from 63 PJ in 2005 to 234 PJ in 2010, and continues to grow rapidly. This is expected to increase to over 2,100 PJ/a following operation of the three LNG projects underway.


    The development of unconventional hydrocarbon resources for recovery of gas from coal is now well established. State of the art equipment is available from a number of reputable sources, and can be quickly deployed.

    Zeus Development Corporation, which is a leading market research firm, confirms that up to 60 coal gasification projects are under development worldwide.


    Ned Goodman is responsible for developing the Dundee group of financial companies from a $300 million base to a $50 billion mutual fund entity. Dundee owns a 9.7% equity stake in Liberty.

    Market prices for natural gas are rising, and both LNG and local users are confirming shortages of gas.

    The Queensland Government is well aware that more gas supplies and lower prices are needed, and that it is imperative to approve development of additional sources of local supply.

    Forecasts also indicate that a global supply shortfall of 175 Mtpa of LNG will build up by 2025.

    Liberty is offering relief to this shortfall with resources of 9,300 PJ, which compares favourably with other gas projects in Queensland that include the Arrow LNG Project with 10,000 PJ, Origin/Conoco/Sinopec at the ANLNG Project with 16,000 PJ, BG/CNOOC/Tokyo Gas at the QCLNG Project with 10,000 PJ, and Santos/Petronas/Total/Kogas at the GLNG Project with 9,300 PJ.

    Liberty has assembled a very competent board and management team that is capable of driving the project to completion.


    Andrew Haythorpe serves as Managing Director and is a Geologist that has been associated with the Mining and Exploration sector for over 20 years.

    He gained experience in evaluating the technical and financial aspects of mining projects while working as a mining analyst for Suncorp, County Natwest and Hartley Poynton, and then as a Fund Manager with Bankers Trust.

    He previously served as Managing Director of Michelago Resources, Crescent Gold and as Non-Executive Chairman of Aurox Resources.

    James Becke serves as Non-Executive Director and has 35 years of experience in all facets of the Australian capital markets including debt, equity and synthetic markets. He was a founding director of Macquarie Bank Ltd, a founding director of Austraclear Ltd and a Director of Capital Markets, Dresdner International Financial Markets (Australia) Ltd.

    Horst Hueniken is based in Ontario Canada and serves as Non-Executive Director and has 24 years of investment experience as portfolio manager, buy-side analyst, and sell-side analyst.

    He has covered global-scale fertilizer, seeds and traits, and grain processing companies, and is knowledgeable about the global agriculture industry and its end markets, including the urea market.

    Catherine Anderson serves as Company Secretary and is a legal practitioner admitted in Western Australia and Victoria, and has over 20 years of experience in both private practice and in house legal roles.

    She has extensive experience in capital raisings and corporate structure and advises on all aspects of corporate and commercial law, and is well versed in company secretarial roles for ASX listed resource companies, as well as having been a director of an ASX listed junior explorer.

    She was nominated two times for the Telstra Business Woman of the Year Award for an online retail business she established in 2007.


    Jake De Boer serves as General Manager and is an Engineer with over 26 years in the Fertiliser and Coal Gasification industries and held senior positions in Perdaman Chemicals & Fertilisers, GHD Oil and Gas and Sasol (Technology) in South Africa.

    He specialises in unconventional energy project development, and has led front end definition of various coal gasification based projects across Australasia and Africa.

    At Perdaman, he was responsible for technical, environmental and project requirements for the $3.5 billion, 2 Mtpa Urea Collie Coal to Urea project in Western Australia.

    Claus Wohlert -Jensen serves as Chief Technical Officer and is a mechanical engineering postgraduate qualified, rotating equipment engineer, with over 30 years local and international experience in the oil and gas industry.

    Scott Cross covers Corporate and Policy Development and has over 12 years of experience in the Canadian finance industry.

    Tim Jones is the Senior Exploration Manager and has over 20 of international exploration and mining experience especially in coal and UCG development.

    Eoghan Cunningham is Project Geologist; Shadi Rawas is the Mechanical and Petroleum Engineer, and Karl Cahill supports Investor Relations for North America.


    The Company has issued 267.3M shares.

    Majority shareholders include:
    - JP Morgan Nominees 34.6M shares,
    - Andrew Haythorpe 35.3M shares (via two entities),
    - Dundee Corporation 24.0M shares and
    - Auto Investment International Ltd 22.0M shares.

    The register is tightly held with the top 20 shareholders controlling 166.9M shares, or 62.8% of the issued capital.

    Liberty has issued 53.9M listed options exercisable at $0.10 on 30/06/13, and 50.6M unlisted options exercisable over a range of $0.125 - $0.45 between 2013 and 2017.

    The Company reported a very lean burn rate of $1.3 million for the December half year, and on 18/01/13 issued 19.4M shares at $0.04 per share for a raise of $0.785M.

    Current cash holdings are $2.0M.


    Liberty has 21 coal exploration tenements in Queensland, a petroleum exploration lease in South Australia and 13 coal prospecting permits totalling 94.72km2 in Canada.

    (click to enlarge)

    The Queensland tenements include 7 that are currently in renewal with a further 3 under application.

    Liberty also has 4 Mineral Development Licenses in application. Granted EPCs and those areas under EPC application total 3,124 sub-blocks, cover approximately 10,625 km2.

    The total area covered under Mineral Development Licence applications is 292 km2.


    (click to enlarge)

    Liberty is developing Australia's first large scale Synthetic Natural Gas Plant and largest ammonia and urea production facility utilising modern, clean technologies, and utilising underground coal resources as a feedstock.

    The Company has already identified JORC compliant Indicated Resources of 402 million tonnes and Inferred Resources of 444 million tonnes for a total of 846 million tonnes of coal.

    These resources are contained within EPC 1435 and MDLa 446 and form the Denison Project area which is the site for the proposed Urea Corp Fertiliser Project.

    (click to enlarge)

    Three other MDLa's are in place at Victus, Kildare and Andrew and are potential sites for additional Syngas projects.


    Current resources around the Denison project area at Injune were independently verified by Ravensgate Mining Industry Consultants in 2011.

    They evaluated 5 historic petroleum wells, 9 seismic surveys and an updated geological interpretation to infer a JORC compliant Inferred Resource of 1,367 million tonnes of coal within the Denison Trough. This resource is contained within the Reids Seam 1, over an average width of 18.9 metres and is located at a depth of 1,200 metres.

    This is sufficient to provide Syngas feedstock to the fertiliser plant for a period of 180 to 515 years at a production rate that consumes 2.7 to 8.0 million tonnes of coal per year.

    The Company recently executed a Letter of Intent with Marubeni, which is one of the world's largest trading groups, and calls for the annualised supply of up to 1 million tonnes of ammonia, and 1 million tonnes of urea for a period of 25 years.

    Operating costs are now being prepared to meet the terms of the proposed commitment with Marubeni.

    This development will most likely evolve into a formal arrangement that will underwrite the development of a "stage two" plant for the production of both ammonia and urea and have a mine life of at least 50 years.

    Development of a low cost ammonia nitrate facility, as an intermediate project step to support the development of the larger, low cost ammonia urea project is also being evaluated.

    Liberty expects to receive Queensland Government approval for the use of in situ underground coal gasification technology within the Denison and Victus Project areas during 2013.


    The gas resources within the Denison and Victus project areas currently constitute the building blocks for the lowest sustainable cost urea and ammonia facility in the world.

    The Company is currently evaluating the construction of a "stage one" Synthetic Natural Gas plant at Victus at a capital cost of $1.3 billion that will produce 750,000 tonnes per annum of pipeline quality gas.

    Victus is proximate to several natural gas pipelines that bring down development costs and allow for a shorter timeline for development and earlier cash flow.

    Discussions are underway for supply of SNG to domestic customers and potentially to supply to LNG facilities for export.

    A review of all drill data is also underway to establish coal quality, resource modeling, and discussions have commenced with overlying tenure holders for access.

    The Company has also proposed the construction of a 600MW power plant that may be located north of Longreach and be powered by low cost SNG.

    Hydro geological and geological assessments and planning for environmental baseline studies has commenced. A baseline for the hydrogeology of the site and associated processes for the MDL has also commenced.


    The project area is extremely well served with infrastructure, skilled labour and local population centres.

    Denison is located 100 kms north of Roma, and Victus is located midway between Roma and Dalby and straddles rail, road and gas pipeline connections that run through the area.

    These links run continue over a distance of approximately 200 kms to the southeast and terminate in Brisbane.

    The port of Gladstone is 350km to the northeast and is a major export point for LNG.


    Both Denison and Victus are located on land that has no agricultural value for raising crops or grazing of animals.

    The project will produce an extremely small surficial footprint that affects only 2% of the project area and constitutes wellhead structures, gas gathering system and central process plant facilities that are connected to local utilities, roads and pipeline system.

    The project will not interfere with the local water table and will serve as a disposal point for large volumes of brine.

    The Company has commenced regional community consultations, and plans to establish a community investment fund.

    The development will employ approximately 2,000 to 3,000 people as it moves through the construction phase and will provide 1,500 jobs when it reaches full capacity. This will result in salary and wage payouts of $449 million.


    Australia currently produces 230,000 tonnes and imports 1,300,000 tonnes of urea each year. Urea is widely used as a nitrogen fertiliser with a standard crop rating of 46-0-0.

    According to FIFA the annual production of urea on a global basis is around 200 million tonnes per annum.

    Ammonia is a compound of nitrogen and hydrogen with the formula NH3. The bulk of ammonia production is utilised as a fertiliser, and is used to increase yields of both corn and wheat.

    Liberty forecasts that its fertiliser project will be capable of producing up to 2.8 million tonnes per year of urea when at full capacity. This will provide local farmers with a long life supply of low cost fertiliser.


    Liberty has established a new wholly subsidiary known as LibertyCan Inc in Ontario. This entity has applied for 13 Coal Prospecting Permits totaling 94.72 km2 in the province of Saskatchewan in Canada and is developing a drilling proposal to evaluate the potential for production of UCG gas.

    The Company retains additional coal interests in the Surat Basin of 10,625 km2 and Galilee Basin of 2,854 km2 in Queensland, and holds two Petroleum Exploration Licences in the southeast corner of South Australia within the Renmark Basin covering 10,000 km2.

    The Company is considering the sale of "non-core" assets to fund early stage development of its flagship gas and fertiliser project.


    Total timeline from commencement of Pre-Feasibility Studies to ongoing fertiliser production is estimated at 69 months. The current timeline includes:

    - Seeking Queensland Government approval to proceed with UCG project.
    - Selling non-core assets for cash to fund operations to sidestep dilution of equity at low prices.
    - Develop Marubeni LOI to formal off-take agreement, and add additional off-take agreements.
    - Secure Joint Venture Partner to develop first Synthetic Gas Project.
    - Complete favorable Pre-Feasibility Study.
    - Complete Bankable Feasibility Study.
    - File Environmental Impact Statement.
    - Secure Funding.


    Liberty has identified massive UCG potential within a number of project areas located in Central Queensland.

    Early stage exploration at Denison has confirmed JORC Indicated and Inferred Resources of 846 million tonnes of coal containing moderate sulphur and a CV of 6,055 Kcal/kg.

    This resource is estimated to contain a contingent resource of 9,300 PJ of gas / 9 Tcf of gas, and is currently valued at $0.0016 /GJ on a current market capitalisation of $15.5 million; and provides a "contingent gas backing" of 34GJ for every issued share.

    Companies are currently paying $0.50 to $1.21/GJ for unconventional (coal bed methane) gas resources located in Queensland. Applying a similar metric to the 34GJ backing of each Liberty share underlines the significant upside that is available to Liberty shareholders.

    This is dependent on Queensland Government approval of UCG development, and completion of positive Pre-Feasibility and Bankable Feasibility Studies.

    Peer Comparisons

    Enterprise Valuations for local peer group reserve coal assets include the following companies:

    - Metro Coal Ltd with an EV of $0.714 per tonne,
    - Linc Energy Ltd with an EV of $0.519 per tonne,
    - Carbon Energy Ltd with an EV of $0.131 per tonne,
    - Clean Global Energy Ltd with an EV of $0.048 per tonne, and
    - Cougar Energy with $0.045 per tonne.

    Peer group average EV is: $0.29 per tonne.

    This compares with Liberty Resources which carries an EV of just $0.011 per tonne of resources. It illustrates the undervaluation of Liberty and upside (potential 2,600% upside) that is available on completion of bankable studies.

    Every 100 million tonnes of JORC coal resources is expected to yield 1,100PJ of Syngas that can be processed to yield 880PJ of synthetic natural gas, or pipeline quality gas that can be sold into local gas markets, exported as LNG, or utilised as a local energy source to produce electricity.

    A similar amount of Syngas can produce 30 million tonnes of ammonia and 72 million tonnes of urea.

    Syngas produced from Denison has an estimated cash cost of $1.00/GJ, and can be utilised to produce low cost electricity at $0.01/kWhr.

    Synthetic Natural Gas can be generated at ±$4.50GJ and underwrite the development of the fertiliser project with long term sales of gas of at least $7 GJ.


    Early technical studies indicate that CAPEX to construct a plant capable of producing 2.8 million tonnes of urea per year is estimated at $2.4 billion.

    Indicative production costs for urea are $70 per tonne, and assuming a sale price "Free On Board" from the process plant of $464 per tonne produces annualised revenues of $1.08 billion.

    Local prices have reached as high as $700 per tonne in local markets - during periods of high demand.

    The same studies indicated production costs of $202 million, taxes of $265 million and maintenance cost of $58 million to produce a free annualised cash flow of $560 million.

    A Discounted Cash Flow valuation of this free cash flow produces a current Net Asset Value that falls within a range of $0.28 to $2.28 per share, after applying a discount rate that has a range of 15.0% to 21.0%.

    This renders a strong risk/return equation for Liberty Resources and compelling entry point for long term investors at three month share price low.

    Proactive Investors is a market leader in the investment news space, providing ASX "Small and Mid-cap" company news, research reports, StockTube videos and One2One Investor Forums.

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