Both groups expect the power generation to be comparable in cost to conventional coal-fired stations, but with significant reductions in accompanying greenhouse emissions.

The agreement with the CSIRO represents a significant diversification and growth opportunity for Metex, which already has existing gold exploration and development assets in the Laverton region of Western Australia.

Metex will acquire a 50% interest in a new joint venture company, Coal Gas Corporation (CGC), by subscribing $A2.5 million in equity capital over a 12-month period. Metex will fund the deal from existing financial resources, with funding options for the next stage possibly including an initial public offering.

The CSIRO has been granted its 50% equity interest for assigning its rights, title and interests associated with the Underground Coal Gasification (UCG) Technology, as well as various related licences to CGC.

Underground coal gasification has been trialled and operating in parts of the former Soviet Union for more than 40 years, and trials have also been performed in China, the US, Western Europe and a number of other countries.

The technology involves the drilling of a range of wells and bores to gasify coal deposits in situ to produce a gas suitable for low-cost power generation. The resultant gases are harnessed at the surface for conversion into suitable feedstock for power generation, or for conversion into ultra-clean liquid fuels and chemicals.

CGC has also acquired three suitable coal leases in the Surat Basin in South East Queensland, covering an area of 2375 square kilometres, which will be the focus of a proposed first stage of activity in identifying and developing a suitable underground coal deposit for demonstration and development of the UCG process.

These leases are located in close proximity to existing infrastructure and potential markets, being traversed by power transmission connectors, gas and oil pipelines, and power stations.

Metex managing director Ian Walker said the initial trial would target coal seams at greater than 400m depth.

“The alternative energy sector is currently experiencing high levels of market interest because of soaring oil prices and strong levels of demand,” Walker said.

“UCG is an innovative process which is suitable for deep underground coal deposits where current underground mining methods and inefficient extraction techniques would make mining uneconomic. Electricity can be generated using the resultant gas at a comparable cost to conventional coal-fired power, but with a 40-50% reduction in greenhouse emissions.

“With increasing global demand for oil and rising coal and oil prices, the inexpensive syngas produced by UCG represents a very attractive alternative for power generation and the gas-to-liquids [GTL] field.

“Moreover, existing technology is available to harness this energy source, including synthesis of liquid fuels using the commercially proven Fischer-Tropsch process.”

Former CSIRO Exploration & Mining Division acting chief Dr Cliff Mallett has joined CGC as executive general manager to manage and implement the commercialisation of the UCG technology.