By Marc Davis, Managing Editor
February, 2003

SmallCapMedia has recently been following the fortunes of Admiral Bay Resources (TSX.V-ADB). The small Canadian methane gas exploration company has seen a solid up-trend in its share price in recent months. But it is only now that its story is beginning to really heat up.

As of February 2003, Admiral Bay (www.admiralbay.com) has embarked upon the first phase of a drill program that is expected to prove the existence of a vast untapped natural energy resource. Specifically, this company is a pioneer in the exploration and development of one of eastern Canada's most prolific, untapped coalbed methane gas basins. In that methane gas is a key component in natural gas, Admiral Bay also stands to benefit from a sustained resurgence in natural gas prices - which have more than doubled in the last couple of years.

The company is exploring five key properties in the gas-rich Moose River Basin in the James Bay lowlands area of northern Ontario, Canada. Past exploration over the past century has revealed an estimated coal resource of up to one billion tons of coal - an ideal geological setting for the presence of large methane reserves. The coalbeds in this region compare very favourably to the Powder River Basin in Wyoming, which is one of the most prolific methane producing settings in the world.

Indeed, the management of Admiral Bay believes that the Moose River Basin may host up to one trillion cubic feet of gas. To date, the company has acquired close to 15,000 acres of strategically located land with a view to increasing its land holdings ten-fold subject to positive early-stage drill results. A private company called James Bay Energy Ltd. also holds a 10 per cent interest in this compelling exploration venture.

Significantly, the Moose River Basin is virtual virgin territory for coalbed methane gas exploration. This represents one of the last North American frontiers for the exploitation of vast unconventional energy resources. And the timing could not be better. Natural gas prices (currently at around U.S. $5 per MCF) have rallied strongly in the past couple of years and continue to trend upwards based on demand outstripping supply. Additionally, it has only become technically feasible to economically extract coalbed methane from coal seams within the last decade. Indeed, this breakthrough has proven so successful in the U.S. that a few intrepid exploration companies have made fortunes, while also lining the pockets of their investors. Now Admiral Bay hopes to duplicate such success in Canada.

With this inspiration in mind, Admiral Bay is embarking upon a five-hole drill program at the centre of each of its key land parcels to better determine the economic potential for this potentially prolific coalbed methane gas basin. Notably, these drill targets have been chosen based on a wealth of data generated by previous coal exploration programs. Indeed, extensive reconnaissance drilling conducted over the past century, and most significantly in the 1980s, has revealed crucial information to determine the location of the mot prospective coal seams. Many of these coal seams average 12 meters (36 feet) in thickness.

Moreover, in recent years, seismic surveying and geophysical logging have helped to collaborate these findings. With this invaluable information (much of which was collected by the Ontario government) available to Admiral Bay, the company has very cost-effectively identified its highest priority drill targets. The likelihood of a successful drill program is further bolstered by a history of coal distillation at a Moose River Basin test facility in the 1940s. Records show that "plentiful" methane and other hydrocarbons were recorded.

Other factors that further enhance Admiral Bay's prospects concern the region's ideal infrastructure. For instance, the Trans Canada pipeline is located 80 kilometers (50 miles) to the south of the central portion of the basin. This will allow Admiral Bay to cost-effectively tie-in to this pipeline, offering easy access to markets for future gas production. Furthermore, there is a railway in close proximity to the project and a heavy haul access road to the basin, as well as a hydroelectric power facility in nearby Smoky Falls. And the James Bay lowlands region is also located near strategic North American shipping centers. In short, all the right dynamics are in place to make for a successful and prolific coalbed methane producing operation that could make Admiral Bay a dominant player in Canada's nascent coalbed methane gas industry.

It is worth noting at this juncture that the demand for coalbed methane extracted gas is only going to grow. After all, it is practical, abundant, and is one of the cleanest burning fuels in the world. Moreover, much of U.S. industry and power generation is being converted from coal to gas because of its environmentally-friendly nature. This is also a global trend in that many industrialized nations seeking alternatives to imported fuels or 'dirty' fuels are also turning to coalbed methane gas. Accordingly, the advent of the Kyoto Protocol's impact on reducing airborne pollutants will no doubt add to natural gas' desirability.

The company also benefits from solid management. Its new president Robert McIntosh brings to the company nearly two decades of experience as a geologist. He has been involved in the exploration and development of numerous mineral properties. This includes the implementation and management of projects focusing on precious and base metals, oil & gas and diamonds in North America and internationally.

Another key management figure is Fenton Scott, a renowned geologist with half a century of experience in mineral exploration and mining. During this time, he participated in the discovery, development and production of 23 gold, silver, base metal, manganese and industrial minerals mines across Canada and around the world. Such mines include the Musselwhite gold mine in Ontario, the Granduc copper mine in British Columbia, as well as Quebec's Matagami Lake zinc-copper-silver complex, the Gaspe copper mines, the Madeleine mines and the Aurizon mine. He has also served in high-profile positions with well-respected mining companies. They are too many to list here but include Vice President of Esso Minerals Canada Ltd., as well as President of both Louvicourt Gold Mines Inc. and Hollinger North Shore Exploration Inc. Scott also served as a Chief Geologist (Minerals) for Imperial Oil. Among his other credits, he was active in the Canadian Institute of Mining and Metallurgy and is a past President of the Prospectors and Developers Association of Canada. The list goes on.

Additionally, Admiral Bay's Board of Directors has recently been strengthened with the addition of Stan Bharti, P. Eng. A businessman with 25 years of experience in project management and corporate financing, Mr. Bharti has raised over $200 million in public markets in the last decade. He is also the President of Desert Sun Mining Corp., a buoyant TSX.V-listed company that is developing a gold mine in Brazil.

In closing and on a technical note, Admiral Bay has a relatively tight share structure (a preferable situation) with 16 million shares outstanding (20.4 million fully diluted). Also, the initiation of a new exploration program on a 'blue sky' project should ensure the delivery of plenty of news flow in the coming months. Hence, the dynamics are in place to support an eight-month 30-degree upward trendline (technical analysts: take note) that shows no signs of abating any time soon. Therefore, it is the opinion of SmallCapMedia that Admiral Bay will outperform the overall market in an impressive fashion in 2003 and even has clear 'home run' potential.

 

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