ARMOUR Energy has partnered up with Queensland mining operator MMG Century to investigate the potential of future gas supply arrangements from its exploration tenements to the company’s operations.

The partnership was secured after both parties entered into a non-binding Memorandum of Understanding.

The initial scope of the MoU will involve a scoping study by the parties to evaluate project feasibility and economics of gas supply for potentially expanded on site power generation at MMG’s Lawn Hill zinc mine site or development of new power generation facilities.

MMG’s Lawn Hill mine site is located on Armour’s 100 per cent owned ATP1107 which covers 7,943 square kilometres and is pending grant by the Queensland Government.

Brisbane-based Armour said potential scenarios to be evaluated would cover MMG’s current and possible future needs and potential third party customer requirements.

The study will evaluate gas supply volumes of between 7 and 9 petajoules per year plus an overlay for potential third party requirements.

Pricing will be determined so as to achieve a minimum return on invested capital for both Armour and MMG while providing “most favourable” price status to MMG compared with other gas sales contracts signed by Armour.

Armour chief executive Robbert de Weijer said the MoU was an important first step towards early monetisation and proof of concept for Armour’s potentially enormous shale gas resources in the region.

“Armour and MMG have recognised the potential for mutual and significant value creation through the supply of gas from Armour’s exploration acreage in North West Queensland to MMG’s potential future operations in the region,” he said.

“The supply of locally produced and competitively priced energy to the Mount Isa region in Queensland which currently uses between 35 and 40 petajoules per annum of gas has the potential to change the landscape for mining operators there who currently use either expensive diesel fuel or gas transported from large distances away and which is becoming more expensive and increasingly scarce.”

Armour has identified a number of stacked play targets within ATP1087, including conventional and underlying unconventional accumulations in the highly prospective Lawn Hill and Riversleigh shales.

The company recently reported contingent resources of 33 billion cubic feet 1C, 154 Bcf 2C and 364 Bcf 3C within ATP1087 relating to the Egilabria 2 well drilled and hydraulically stimulated in 2013.

The Century ore body has produced more than 6 million tonnes of zinc in concentrate. While last production from the Century open pit is expected during 2015, MMG is investigating a number of options to further utilise its extensive infrastructure in the Gulf, with an important driver of the feasibility of future projects for MMG relating to cost and availability of energy.

“Secure, cost‐effective energy supply is critical to the further development of the region, and for MMG’s ongoing investigations into future uses for its extensive north‐west Queensland infrastructure,” MMG general manager for Queensland operations Mark Adams said.