News that AustChina Holdings is selling its gas subsidiary has driven shares up 40 per cent.

The Brisbane-based company (ASX:AUH), which until August last year was Coalbank, has signed an option deed for Surat Gas.

The potential buyer has 21 days to decide whether or not it wants to buy the subsidiary for $6.5 million. The deal is conditional on the buyer securing finance within 60 days.

Shares climbed 40 per cent to 0.7c on Wednesday.

In the past year, AustChina shares have traded between 0.2c and 1.1c. The company attracted the attention of the ASX after shares spiked 83 per cent in one day earlier this year.

Surat Gas owns a 50 per cent stake in three permits in southeast Queensland that could be prospective for coal seam gas as well as conventional oil and gas.

A gas shortage on Australia’s east coast has driven prices north. Gas prices have increased from 2008-2010 levels of $2 per gigajoule to recent highs of over $10 per gigajoule.

AUH shares over the past year.
AUH shares over the past year.

AustChina had $214,000 in cash at the end of the December quarter after it spent $237,000 on exploration and administration.

The company, which also has investments in biogas and coal, reduced its estimated cash burn for the current quarter to $190,000.