Newera Resources (ASX: NRU) has inked a binding Memorandum of Understanding to form a joint venture to explore the large Ulaan Tolgoi Project in the South Gobi province of Mongolia.

The 43,830 hectare project lies 84 kilometres south of one of the world’s largest untapped coking and thermal coal deposits – the 6.4 billion tonne Tavan Tolgoi.

The Ulaan Tolgoi licence Newera is farming into is considered prospective for coal in concealed extensions of the late Permian coal bearing Tavan Tolgoi Group rocks of the South Gobi Basin.

Visible in satellite imagery, striking east to west through the south of the licence is the Sonduult thrust fault.

The fault is believed to be a potential extension of the Nariin Sukhait thrust fault that hosts large coal deposits 150 to 250 kilometres further west of Ulaan Tolgoi.

Minor coal outcrops along the Nariin Sukhait thrust fault to the west of Ulaan Tolgoi led to the discovery of the large MAK and Ovoot Tolgoi coking/thermal coal deposits as well as the Soumber, Biluut, and Guilford Coal’s South Gobi deposits.

In terms of coal, the South Gobi province of Mongolia has recently become known as the epi-centre of recent exploration and mining developments, particularly for coking coal and high energy thermal coal within southern Mongolia.

There are advanced plans for the expansion of the Mongolian rail network to connect Tavan Tolgoi to the Chinese rail network.

The new rail line is likely to enhance the economics of any new coal discovery at Ulaan Tolgoi.

The Ulaan Tolgoi licence area has had very little modern exploration completed over the potential late Permian coal bearing sequences which is said to be masked by extensive colluvium cover.

This provides Newera the opportunity to quite quickly run seismic or electromagnetic surveys over the basin sequences to determine if coal drilling targets exist under the cover.

The company plans to pay particular attention to investigating the Sunduult thrust fault margins, seeking MAK and Ovoot Tolgoi deposit lookalikes.

The giant Tavan Tolgoi deposit was also discovered in a greenfields area with no coal outcrop while drilling for water, offering the potential for the discovery of another Tavan Tolgoi.

Key MoU terms

Once Newera has completed due diligence and is satisfied with the results, the company is required to pay US$64,000 to the vendor.

Under the stage one earn in, Newera can earn an initial 51% interest by spending US$200,000 by 30 June 2014.

The company can then increase its interest by a further 19% by spending another US$1.2 million or undertaking no less than 4,000 metres of drilling within three years.

Newera has for some time been searching for a second highly prospective coal exploration project and has plans to continue to consider new projects to build its portfolio.