Australia’s New Play on Mongolia’s Resource Boom

Australian investors will soon have a new play on Mongolia’s resources boom,
but it won’t be the usual suspects like copper and coal.

ASX-listed minerals explorer Strzelecki Metals plans to acquire unlisted
Wolf Petroleum, which has rights to explore vast tracts of the Mongolian steppe
for oil and natural gas. The all-scrip deal comes after Wolf’s advisor,
Perth-based Garrison Capital, scrapped plans for an initial public offering
over the coming year.

Mongolia’s close proximity to China, the world’s largest energy consumer,
and untapped resources potential has prompted a string of big M&A deals
over the past year.

Headline transactions include Hong Kong conglomerate Kerry Group’s sale of a
majority stake in its Mongolian coking coal assets to Mongolian Mining Corp.
for US$464.47 million, and Thai coal producer Banpu’s acquisition of the shares
it didn’t already own in Hunnu Coal, which valued the company at US$443
million.

In addition, Rio Tinto took control of Ivanhoe Mines as the pair invest
billions of U.S. dollars in Mongolia to develop the Oyu Tolgoi copper deposit.

If approved by shareholders, Strzelecki will be renamed Wolf Petroleum and
restart trading in November. The combined company is likely to have a market
value around 50 million Australian dollars (US$51.1 million).

Strzelecki Chairman Brian McMaster said favoring a backdoor listing over an
IPO wasn’t related to the sudden downturn in Australia’s equity market.

“It is substantially to do with accelerating Wolf’s exploration program,
which is ahead of schedule,” Mr. McMaster told Deal Journal Australia.

After the reverse takeover and proposed share consolidation, Wolf will have
around A$5 million in cash and will look to raise more funds “toward the end of
the year”, Mr. McMaster said.

Sharing a border with China, Mongolia is a relatively new frontier for oil
exploration and production. The Mongolian Government recently estimated there
may be as many as 10.7 billion barrels of crude oil-in-place in more than 30
blocks.

It is lightly explored, however, with China’s state-owned PetroChina one of
the few significant producers.

Mongolia also lacks infrastructure, so challenges remain in railing oil to
China as exports would need to compete with other commodities and passenger
trains for capacity. Accessing an oil pipeline from Russia to China is an
option, but Russian producers like Rosneft have first refusal.

Formed by Garrison in 2010, Wolf is now regarded as the biggest oil tenement
holder in Mongolia with more than 80,000 square kilometers.

It has been running seismic studies for the past year to identify the best
targets, and plans to start a drilling campaign next year.

Wolf’s Baruun Urt block in the east of the country is relatively close to
PetroChina’s existing oil fields, while its massive Jinst block in the south
west is the biggest single exploration block in Mongolia.

Under the terms of the deal, Wolf’s existing shareholders, including
Garrison’s executive chairman Matthew Wood, will be offered 25 Strzelecki
shares for every one Wolf share.