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Baru Resources to list on ASX, taps investor demand for Queensland coal “plays”

Baru Resources (ASX: BAC) holds large scale coal exploration targets and acreage in the under explored but prospective North Western Galilee Basin in Queensland - with the company's short term aim to define a JORC Resource.

Significantly, the chairman of Baru Resources is also chairman of International Coal (ASX: ICX) which recently listed on the ASX at a premium to issue price, which also has Queensland based coal tenements. 

Another director is Kevin Nichol who is behind the resurgence in Victorian Gold Mines, now a phosphate project developer re-named Celamin Holdings (ASX: CNL).

Although an early stage explorer, Baru has a very tight capital structure and limited shares on issue or in escrow that ensures it is leveraged to any exploration success.

A prospectus has been issued to raise a minimum of $4 million and maximum of $6 million to assess and to explore the West Galilee Project.  It is likely Baru will not encounter too many issues raising the funds – as there is significant investor demand for Queensland coal “plays.”

 

Background

Baru focused on the exploration and development of hard coking and thermal coals for the export market.

The company currently holds 6 Exploration Permits and 1 Exploration Permit for Coal Application known as the West Galilee Project, covering 7,140 square kilometres and located in the Eromanga Basin of northern Queensland. 

The Company’s project area is described as The West Galilee Project in the Eromanga Basin within 200 kilometres of Hughenden and within 375 kilometres of Mount Isa in Queensland

The Exploration Permit contains 2,100 sub blocks or 5,880 sq km and is drill ready – with no native title or strategic cropping issues.

West Galilee encompasses three overlapping basins –Galilee, Eromanga and Millungera.  The Galilee and Eromanga are known to be coal bearing. The Millungera has recently been defined and interpreted as potentially hosting significant coal seams.

The West Galilee project is initially targeting coal deposits located in the Eromanga Basin. The Company is seeking to establish a low ash, high energy quality, coking coal project as a priority as well as pursuing a large quantity thermal coal target.

The primary focus will be on EPCs 2078 and EPCA 2075 which will be explored with the objective to prove up an initial open cut mineable resource of high quality coking coal.

Whilst the immediate area around The West Galilee Project has not been historically mined for coal, the area remains relatively unexplored in terms of finding coal deposits.

The Eromanga Basin is known to contain economically exploitable coal seams of thermal coal. The Eromanga Basin is known to host economic thermal coal in the Winton Formation at surface on EPC 2078.

Evidence of the presence of thermal coal has been uncovered on EPCs 2076, 2077 and 2078. Additionally, EPCA 2075 covers the Millungera Basin and the Galilee Basin which has various geological features encouraging exploratory drilling on this permit would be one of our priorities.

The Galilee Basin sub crops in the north, Betts Creek Beds on the margin with seams up to 4 metres thick.

Three sedimentary basins that include the Galilee with coal bearing formations from the Permian age that are sub-bituminous to bituminous; Eromanga is Cretaceous in age and carries both sub-bituminous coal and lignite; and the newly identified Millungera, which remains unexplored.

Other formations are known within the Eromanga Basin including Wallumbilla, Blantyre and Birkhead; and Bandana and Aramac in the Galilee, with numerous coal seams up to 3 metres in thickness recorded throughout the project area.

 

Galilee region exploration hotting up

The potential of the Galilee Basin to host large coal deposits is evidenced by Linc Energy Ltd’s  (ASX: LNC) project area in a similar basin margin stratigraphic setting, 120 kilometres to the east, with indicated and inferred resources of thermal coal respectively of 161.4m tonnes and 78.3m tonnes.

To the south east on the eastern margin of the Galilee Basin both Linc Energy (ASX:LNC) and Waratah Coal have reported inferred resources of 326 million tonnes and 4.3 billion tonnes of thermal coal respectively.

The data from historical water bores provided from the Queensland Department of Natural Resources and Water (DNR&W) within the FTB applications shows all but one of the Baru tenements has documented coal intersections.

Baru’s West Gaililee Project is ring-fenced by neighbours with tenements pegged by listed coal exploration companies including:

Guilford Coal (ASX: GUF) Market Cap: $487m
- Hughenden Project.  11.9 metres net coal seam intersections.
- The project target is for substantial export thermal coal tonnages with open cut and underground mining potential which are located in close proximity to infrastructure with the Mt Isa to Townsville rail line running across the project area.
- Independent Geologists (Moultrie) have developed an Exploration Target for the Hughenden Project of 580 million tonnes to 5.72 billion tonnes
- Recent drilling results announced by Guildford Coal from their Hughenden Project, intersected coal seams with 11.9m of net coal, with the thickest being 5.6m of coal, within an interval 360-406m of the Permian, Betts Creek Beds.
- The MDM analysis of exploration results to date also confirms that a JORC underground inferred resource on EPC1477 could be declared following completion and analysis of the current exploration hole being cored.

Cullen Resources (ASX: CUL)  Market Cap: $18m
- Petroleum wells in the same region include “McQueen #1”, that intersected 4m of shale and coal (164 -168m) and “Cork #1” that intersected 5m of shale and coal (380-385m; 80% coal) within a broader carbonaceous (trace, to 20% coal) sediment sequence from 60-420m down hole. Cullen has applied for four EPCAs covering “WB2498” and extensions north and south towards the McQueen and Cork drill collars

Waratah Coal
- Waratah Coal is proposing to develop a coal mine, railway and port facility in Central Queensland to export high volatile, low sulphur, steaming coal to international markets. The projects estimated total development cost is AU$5.3 billion.
- Processed coal will be transported by a new 495 kilometre rail system from the Galilee Basin to a planned export port facility on the Central Queensland coast…
- Queensland's coordinator-general has approved a $2 billion major rail corridor in the state's central-west to open up mining projects in the Galilee Basin.

Linc Energy (ASX:LNC) Market Cap: $1.1b
- Linc Energy’s Galilee coal tenement has significant thermal coal resource of 7.8 billion tonnes

Carpentaria Exploration  (ASX: CAP) Market Cap: $27m
- Carpentaria  has 15 EPC applications in the northern part of the Eromanga - Galilee Basins in Queensland that covers 12,000 square kilometres including the underexplored Galilee and Eromanga basins

 

Baru Resources exploration program

Funds raised from listing will be deployed to attempt to establish an initial coal resource to JORC standard, expand resources over the medium term, and acquire coal assets that are complimentary to West Galilee; and seek new coal and non coal mineral assets.

 

Infrastructure

Baru's West Galilee project area is intersected handily by the Mount Isa - Townsville Rail line (Eastern Rail Corridor).  Potential ports include: Townsville and Abbott Point. Feasibility studies are commencing for Townsville port upgrade.  Abbot Point Coal Terminal is earmarked for expansion.

West Galilee is located 375 kilometres east of Mount Isa, and has the Mount Isa – Townsville rail line running through the project.   It straddles both a road and rail line that provides a potential link for West Galilee with the nearest coastal coal terminal at Abbot Point Terminal, which is 500 kilometres to the east.

Importantly, Guildford’s Hughenden project is located near Pentland and the main rail line to Townsville and Guildford's signed MOUs for a planned feasibility study to develop rail coal and export facilities from the Port of Townsville (POT).

The POT is the closest port to the Hughenden project and GUF have been a first mover in executing a MOU with the POT. This will ensure Guildford does not have to compete for allocation at Abbots Point.

A Feasibility Study will evaluate the logistics of exporting coal through the Townsville Port and will include the design and construction of necessary export infrastructure. The feasibility study will be jointly funded by the Port of Townsville and Guildford.

This provides a blue-print of sorts for Baru to attempt to “piggy-back” on Hughenden.

The area is partially cultivated for raising cattle to the north, but is mostly covered in bush and scrub, and has no history of coal mining.

The main exploration focus in the first year will directed at drilling EPC 2078, and EPCA 2075, where Baru will attempt to prove up an initial open cut mineable resource of high quality coking coal. The Eromanga Basin is known to contain economically exploitable coal seams of thermal coal.

Additional first year drilling programs will also be carried out at EPC 2076, 2073, and 2074.

Historical exploration efforts by various explorers seeking oil, gas and mineral resources, along with data recovered from water-bore drilling confirm the presence

of thermal coal on 2076, 2077 and 2078. EPCA 2075 encompasses sections from both the Millungera and Galilee Basins and carries various geological features that will be prioritized for early scout drilling.

 

West Galilee Project – Exploration Targets

Moultrie Database and Modeling have completed an Independent Geologist Report and have calculated exploration targets.

Moultrie has estimated that EPC 2078 has prospectivity for coal in the Eromanga Basin, and with coal potential in the Winton and Mackunda Formations.

The conceptual target covers 108 million square metres, over an estimated width of 3.0 metres, for a gross tonnage of 486 million tonnes, producing a conceptual coal Exploration Target of 100 - 300 million tonnes. 

This was based on technical data developed from historical exploration and drilling, observations from water bores, regional and local geology, along with airborne magnetic and gravity data and regional seismic data.

The target zone was referenced in the Belfast #1 well that was drilled in 1988, in the northern end of the Eromanga Basin and intersected two coal zones in the Betts Creek bed, at 996.70 – 1,030 metres carrying a maximum coal content of 30%. These coal intersections occurred above the commencement of the Millungera Basin at depth of 1,050 metres. 

Baru plans 3 Rotary Chip drilling programs across EPC 2078 within 12 months of listing.

The Eromanga Basin is known to contain coal seams that can be economically beneficiated to produce both domestic and export thermal coals. The main coal bearing seams are contained in the Winton Formation, with lesser thickness also occurring in the Mackunda, Westbourne and Evergreen Formations. The Winton Formation

appears on the surface and in the southern part of EPC 2078 and covers 880 square kilometres. This formation is known to contain a cumulative thickness of 4 metres of thermal quality coal.

EPCA 2075 is in the Eromanga Basin and the Mackunda Formation that overlays the Millungera Basin sedimentary rocks, which are expected at a depth of 300 – 600 metres. The target zone was referenced in the Rosevale Downs #1 well, in the northern Eromanga Basin, intersecting the Eromanga sequence over 573 metres from surface. The Millungera Basin was first identified in 2008, by the Queensland Government Survey, and has a similar morphology to the Drummond and Galilee Basins, with the

Galilee known to contain significant coal seams. The Millungera Basin sits on heat producing granite that is overlain by the Eromanga Basin, which is an ideal source for geothermal energy and development of coking coal.    

EPC 2076 is in the Galilee Basin and within Betts Creek Beds, which are expected at a depth of less than 500 metres. The conceptual target includes the Allaru Formation that covers 45 million square metres, over an estimated width of 1.55 metres, for a gross of 139.5 million tonnes, producing a conceptual coal exploration target of 0 – 80 million tonnes.

The target zone was interpreted from nearby water bores that contained coal intersections, which in some locations are up to 12 metres thick. Baru plans 2 Rotary Chip drilling programs across EPC 2076 within 12 months of listing.

 

Exploration spend

The Company plans to issue up to 30 million shares at 20 cents to raise $6 million, for total issued capital of 50.1 million shares.  First year exploration has a modest budget of $940,000 set aside for the first year of exploration that includes drilling, contractor expenses, mapping, surveying, down-hole geophysics and sundry expenses.

The second year of exploration will absorb up to $2.11 million that includes 15 Rotary Chip drilling programs across EPC 2078, 2075 and 2076; and 10 Partially Cored drilling programs across EPC 2073, 2074, 2072 and 2077.

 

Analysis

Although early stage in its evolution, Baru has a very tight capital structure that ensures it is leveraged to any exploration success.  It has also timed its run to the ASX well, maximizing the current investor interest and success backing Queensland coal explorers and developers.

West Galilee is a green-field exploration play, with no prior exploration history for coal in the area other than the drilling of 31 holes on ATP289C, which identified the Blantyre Sandstones with cumulative coal intersections of 4 metres, to the north of the project area. Water bores within a 100 kilometre radius of West Galilee have recorded from 0.5 – 17 metre seams of coal from depths of 21 – 1,295 metres.  

A possible line to assess the potential prospectivity of Baru’s tenements and hence calculate valuation is the most recent announcement by Guildford of an exploration target of 580 million tonnes to 5.72 billion tonnes for its Hughenden project. 

On the news, the Guildford share price rose by around 28%. Guildford’s tenement is adjacent to Baru’s West Galilee project. Guildford is a coal exploration company that has been listed on the ASX for less than 12 months and is valued at $487.9 million.  (It also has significant other Queensland coal assets and Mongolian coal assets).

That the main Mt Isa –Townsville Railway line (Eastern Rail Corridor) runs through Baru’s West Galilee Project area could be of potentially of significant benefit to Baru.

In addition, Baru has timed its run to list on the ASX deftly, as valuations have increased significantly for most early stage coal explorers like International Coal (recent IPO listed) and more advanced coal project developers alike.