Perth, Australia's Metex Resources (ASX: MEE [1]) said today it would buy the remaining stake in Carbon Energy, an underground coal gasification, or UCG, joint venture, for $38 million in cash and stock.

Under the agreement, Metex said it would pay $2.3 million in cash and 100 million Metex shares to the Commonwealth Scientific and Industrial Research Organisation, or CSIRO, Australia's national science agency.

CSIRO would become Metex's largest shareholder once the deal is closed, with a 27 percent stake in Metex.

"Following completion of the transaction we will hold 100 percent of Carbon Energy, enabling us to fast-track the development of our planned UCG demonstration plant in the Surat Basin, where construction is scheduled to begin in January 2008, subject to receiving all approvals," said Ian Walker, managing director of Metex.

Metex said the $20 million demonstration project, using Carbon Energy's UCG technology, involves drilling boreholes from the surface to the underground coal seam, and gasifying the coal in-situ to produce a syngas.

The syngas can then be converted into feedstock for power generation, or for conversion into ultra-clean liquid fuels and chemicals.

The company said the project would be Australia’s largest UCG gas production demonstration, producing syngas at the rate of 1 petajoule per year, enough to provide up to 10 megawatts of power.

Metex and CSIRO set up the Carbon Energy joint venture in July 2006.