Leyshon Resources (LON:LRL) the dual listed (ASX:LRL/AIM:LRL) China focused resource company, has recently announced that the first well of a three well drilling campaign is due to reach its total depth by the end of November. Operating through its recent acquisition Pacific Asia Petroleum Limited, which Leyshon acquired in August for US$ 2.5 million in cash and the issue of 10 million fully paid ordinary shares, the company is focused on the 708 km2 Zijinshan block located on the Eastern flank of the prolific Ordos Basin, which is China's second largest and regarded by Leyshon as one of the world's major gas producing basins. 
Leyshon Resources who operate from their Beijing base, was set up by its Managing Director Paul Atherley in 2003 as a direct result of China opening its mining sector to foreign investment, and is hoping to capitalise on the urbanisation of a large number of Central China's rural population into second and third tier cities. The hope for Leyshon is that this urbanisation move will increase the capital infrastructure spending and in tandem the energy demands will also be a by-product of this demographic change which could see the urbanisation rate lifted to 51.5% of the overall population under China's latest Five Year Plan. 
The new operations management team led by COO Frank Fu, has 20 years’ experience with ConocoPhillips in China, and successfully drilled and appraised the nearby multi-Tcf Sanjiaobei and Linxing discoveries. Pacific Asia Petroleum Limited has 100% interest in the project during the exploration phase of the Production Sharing Contract with PetroChina holding a right to buy back a 40% interest at the should the project reach the development stage.
Leyshon Resources have other pursuing interests including a thermal coal project located in the Western Chinese province of Xinjiang, however due to the recent 30% fall in domestic thermal coal prices, the near term economics and potential financing has been impacted, Leyshon management are still believed to be monitoring developments at this project to assess whether there would be an attractive entry point for the Company. Also of interest to Leyshon Resource shareholders is the Mt Leyshon project, however, although the ball mill scats drilling and preliminary test work programme has indicated that the project is viable, it requires significant capital investment and is not viewed as being economically worthwhile at this moment in time.
Leyshon Resources are also in the process of buying back their own shares and have recently announced that it will increase this scheme from 5.5 to 24 million shares to be purchased between now and 12 September 2013. The buyback will be funded from the Leyshon cash reserve which currently stands at around A$47.8 million equivalent to around 12p per share with the share issue standing at 249m. The total cost of the current 3 well campaign for drilling, logging, casing, fracking and flow testing the three wells is estimated at around US$ 5 million. 
The initial three well programme to test for gas in similar formations to the adjacent discoveries within the Sanjiaobei and Linxing blocks will be targeting a 600 metre interval and drilling to a depth of approximately 2.4 kilometres. Should the work programme prove a commercial resource, the drilled wells are located within 10 kilometres of a tie in point on the Lin-Lin pipeline which supplies the growing demand in Shanxi Province, where well head contracts have recently been struck in the US$ 6 - 7.5 per mscf range which compares very favourable against the Henry hub spot price.
I would not normally be interested in a pure gas play, however the lower expenditure when compared to say the Eagle Ford and the high well head price, coupled with the potential according to the MD in a recent interview for a resource valuation on a successful campaign of up to a possible NPV@10% of $1.1 billon (60%), means Leyshon Resources merits place on the research and watch list in my view. 
Ticker Code: LRL, Shares in Issue: 249m Current SP: 11.25p Market Cap: £28m 52WK High: 16.40p 52WK Low: 10.54p
Disclosure of interest: The Author of this article holds shares in Leyshon Resources.
 LRL Presentation October 2012, http://portal.sliderocket.com/CMAHQ/Investors-Presentation-London-October-2012
 Leyshon Resources Presentation 25th October 2012 http://www.proactiveinvestors.co.uk/companies/stocktube/1407/leyshon-resources-presentation-25th-october-2012-1407.html
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