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QEM planning IPO on unique vanadium-oil play in Queensland

QEM Ltd. closed its A$5 million raise on Sept. 10 for a A$20 million IPO due by early October focused on the unique Julie Creek project in North Queensland located over the Toolebuc Formation, which hosts widespread vanadium mineralization and is also considered an "oil shale," potentially giving the company two revenue streams.

The Gold Coast, Australia-based company has a mineral resource estimate of 1.7 billion tonnes at 0.34% vanadium pentoxide and 64.1 liters per tonne of petroleum, with 3C contingent oil resources of 589 million barrels, based on 90% extraction of petroleum initially in place of 654 million barrels. Those resources are in a shallow geological unit that could be readily mined using open cut methods.

Esso tested the area to the south and west of QEM's tenements in the early 1980s for base metals, with drilling returning average vanadium pentoxide values of 0.35% with anomalous zinc, copper, nickel, uranium and molybdenum in line with others throughout the area.

QEM will undertake about A$2.8 million in exploration and development activities post-listing, including a drill campaign to upgrade the resource which will allow the mine design and engineering studies, and subsequent mining lease application.

The junior will also progress its relationship with TSX Venture Exchange listed company Petroteq Energy Inc, formerly MCW Energy Group Ltd, with which it has a memorandum of understanding regarding a proprietary, environmentally friendly closed loop solvent extraction process being developed for U.S. oil sands.

Under the terms of the agreement, Petroteq will carry out test work on samples of the Toolebuc Formation to assess the suitability of the process for Julia Creek. Some bulk samples are currently at an independent lab in Virginia, U.S., and Independent Investment Research said in an August client note that if the work is successful, it could be a "game changer" in allowing for the low-cost treatment of the oil shales through modular equipment.

QEM Executive Director David Fitch, who founded the company in 2014, told S&P Global Market Intelligence that if the test work is successful and it is commercially viable, then the hydrocarbons will be coming out first.

"We know that Petroteq has got its full Environmental Protection Agency requirements in Utah for its technology, but we're still to determine whether it will be applicable here or whether we need to go through a trial process," Fitch said.

Metallurgical risk amid high rewards

While the success of the project which QEM acquired in 2015 hinges on that metallurgical test work, IIR cautioned that Petroteq's process is operating on oil sands that contain bitumen rather than the less soluble kerogen as found in the Toolebuc Formation. However, it was reportedly initially developed for and tested on oil shale.

A 2016 scoping study said QEM could still proceed with a standalone vanadium project using the standard acid leaching process which Fitch said would be "borderline economical" at US$6 per pound with a CapEx of A$250 million, but to make the project even more economic, it was concluded that consideration be given with regards to removing the hydrocarbons first, using Petroteq's technology.

International Cobalt Resources Ltd Managing Director Ben Cooper also of financial services firm Vested Equities who raised the money for QEM and is on its board as a non-executive director, told S&P Global Market Intelligence that "if we can pull it off, we will be a near-term production play and we will be significantly re-rated in the market."

Both Cooper and Scott Drelincourt, the geological consultant who will soon join QEM as its general manager of geology and development, said the junior is likely to be the first ASX-listed company that will be reporting under two codes (oil and minerals) for the same ore body, and as the vanadium and oil are bound in the same stratigraphic unit, the testing for both can be done simultaneously.

Drelincourt knows Queensland's geology well, having been the consulting mine geologist for Whitehaven Coal Ltd.'s Narrabri underground coal mine and was Cuesta Coal Ltd.'s senior geologist, and also has oil and gas experience having consulted for Santos Ltd.

Fitch has been joined on the board being formed for the IPO by chairman John Foley, who also chairs Citigold Corp. Ltd., along with Australian Vanadium Ltd. Paladin Energy Ltd. and Atlas Iron Ltd. board member Daniel Harris, who is considered a vanadium expert having managed Evraz PLC's vanadium assets.

Fitch said the Chinese vanadium pentoxide flake 98% product price has risen from about US$6 per pound in 2017 to US$18.50 per pound on Sept. 7.