SouthGobi Resources Limited
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SouthGobi Resources Limited

October 12, 2009 16:33 ET

SouthGobi Energy Resources Increases Its NI 43-101 Compliant Measured and Indicated Coal Resource Base in Mongolia by 39% From 221.2 Million Tonnes to 307.6 Million Tonnes

Proven and Probable mineable reserves established at Ovoot Tolgoi based on open-pit mine study independently prepared by Norwest Maiden NI 43-101 compliant coal resource established for Soumber, a new deposit located approximately 16km to the east of Ovoot Tolgoi

HONG KONG, CHINA--(Marketwire - Oct. 12, 2009) - Alexander Molyneux, President and CEO of SouthGobi Energy Resources Ltd. (TSX VENTURE:SGQ), announced today that a new, independent estimate prepared by Norwest Corporation, of Salt Lake City, Utah, has upgraded Measured and Indicated coal resources contained at the company's Ovoot Tolgoi Mine in southern Mongolia to the Proven and Probable Mineral Reserve categories.

Total Proven and Probable surface coal reserves calculated at Ovoot Tolgoi as of July 1, 2009, are estimated to be 114.1 million tonnes (Table 1). Approximately 92% of the reserves are classified in the Proven reliability or assurance category; the remaining 8% are in the Probable category.

Three coal products are presently being mined or are expected to be produced at Ovoot Tolgoi; a hard coking (or metallurgical) coal, a premium coal with applications for PCI coking coal or a high-quality thermal coal, and a thermal coal product for use in power generation.

Table 1: Surface Mineable Reserves as of July 1, 2009



-----------------------------------------------------------
Proven Probable Total
ASTM Coal (million (million (million
Reserve Area Rank tonnes) tonnes) tonnes)
-----------------------------------------------------------
Ovoot Tolgoi hvB to hvA(i) 105.0 9.1 114.1
Mine
-----------------------------------------------------------

(i) hvB to hvA - high-volatile bituminous coal B to A rank
based on ASTM D388 standards


A 'block model' approach was taken in constructing a geologic model of the deposit using the MineSight software. The software was then used in order to apply a Lerchs-Grossman (LG)-based algorithm in order to determine the economically feasible (i.e., optimized for Net Present Value, NPV) portions of the deposit. With a demonstrated economic viability, a portion of the resource base may be classified as proven and probable reserves.

"As we had expected, the Norwest study has confirmed the economics of the Ovoot Tolgoi Measured and Indicated surface resources, and upgraded them to Proven and Probable Reserves," said Mr. Molyneux. "We have now sold more than one million tonnes of Ovoot Tolgoi coal since we started sales around 12-months ago and the Norwest study reaffirms the mine's potential to grow substantially."

The independent surface reserves estimates were prepared by Norwest Corporation, of Salt Lake City, Utah and were prepared in conformance with Canadian Institute of Mining (CIM) Standards and the requirements set out in Canada's National Instrument (NI) 43-101. A NI 43-101 technical report is expected to be filed within 45 days.

Estimate of Reserves at Ovoot Tolgoi Coal Mine, Mongolia

This estimate of resources and reserves was generated using the best information available concerning issues related to environmental, permitting, legal, title, taxation, socio-economics, marketing and political factors that could have a material influence on Norwest's findings. Norwest is not aware of any additional factors which may affect our reserves estimate.

Previous work by Norwest has been recently repeated to take into account the additional drilling and updated geologic model and resources base.

Mining operations at Ovoot are currently spread over two pits in the Sunset area (formally named the West Field), and most of the mine infrastructure is in place or is being constructed. Installed mining equipment is comprised of a mid-sized (13.5 m3) hydraulic shovel and (10 m3) front end loader (Liebherr 994 and LeTourneau 950, respectively), matched with a minimum of six Terex 91-tonne capacity mining trucks (TR100) and a suite of support equipment. In addition, a larger hydraulic shovel (Liebherr R996, 34 m3 bucket) is on-site. The current pre-feasibility study being undertaken by Norwest proposes that this equipment continue to be used, with primary stripping to be accomplished using the larger 34 m3 bucket-sized HMS matched with 218t-class mining trucks (Terex MT4400).

Norwest has studied pre-feasibility based on considering ramping up surface production to eight million tonnes per year by 2012, as shown in Table 2. Feasibility of underground mining has not been determined in this study.

Table 2: Planned Surface Production Ramp-up Schedule



-------------------------
Planned Coal
Period Production
-------------------------
2009 1,000,000 tonnes
-------------------------
2010 4,000,000 tonnes
-------------------------
2011 6,500,000 tonnes
-------------------------
2012 + 8,000,000 tonnes
-------------------------


A 'block model' approach was taken in constructing a geologic model of the deposit using the MineSight software. The software was then used in order to apply a Lerchs-Grossman (LG)-based algorithm in order to determine the economically feasible (i.e., optimized for Net Present Value, NPV) portions of the deposit. By applying the optimization tools available in MineSight, Norwest was able to generate a series of phased, or "nested" pits of increasing Net Present Value (NPV) that describe the broad mining sequence. This sequence served as the basis of a detailed schedule of stripping and coal mining to meet various goals.

Once completed, the detailed mine plan served as the basis of an estimate of operating, capital and indirect costs. This estimate was performed using a combination of historically tracked data from the mine as well as industry averages, adjusted for the region. An independent market study specifically for Ovoot Tolgoi was then used in order to determine reasonable markets and coal prices. With costing and pricing information a cash flow analysis was performed that yielded an estimate of NPVs at various discount rates ranging from undiscounted to 20%, and confirmed the economic feasibility of the project. In addition, analyses were performed to determine project sensitivity to such factors as railing the coal to China, assuming an exemption to the current Value Added Tax (VAT) refund law, and changes in key parameters such as coal price, mining costs, etc.

Table 3: Ovoot Tolgoi NPV at Various Discount Rates (8 million tonnes per year)



--------------------------------------------------------------------------
Interest Rate 0% 8% 10% 12% 15% 20%
--------------------------------------------------------------------------
Net Present Value 2,320,177 1,156,318 994,467 862,322 706,242 523,565
(US$000)
--------------------------------------------------------------------------


New NI 43-101 Ovoot Tolgoi Resource Estimate: Total Measured and Indicated coal resources at 249.8 million tonnes, with an additional inferred resource of 33.5 million tonnes

SouthGobi also is pleased to announce that the company has received an updated independent Nl 43-101 compliant resource estimate for the Ovoot Tolgoi property. Ovoot Tolgoi surface and underground resources contain measured plus indicated coal resources of 249.8 million tonnes, with an additional inferred coal resource of 33.5 million tonnes. The Mineral Resources (Table 4) are inclusive of the Mineral Reserves (Table 1).

Ovoot Tolgoi resources are found in two different resource areas, referred to as the Sunrise and Sunset Fields (formerly the South-East and West Fields, respectively). The resources identified have been determined to be suitable for surface mining to a maximum depth of 250 metres below surface and potential underground mining between a depth of 250 metres below surface to a maximum depth of 600 metres. The resource estimate is current as of June 1, 2009.

Quality analyses performed to date by SGS Mineral Labs in Denver, Colorado and Tianjin, China rank Ovoot Togoi coal as high-volatile B to A bituminous based on the ASTM D388 standard. High-volatile B and A bituminous coals are hard black coals. High-volatile B produces between 7,212 to 7,785 kCal/kg and high-volatile A produces greater than 7,785 kCal/kg heat output.

Table 4: Total (Surface and Underground) Ovoot Tolgoi In-Place Coal Resource Summary as of June 1, 2009



---------------------------------------------------------------------
In-Place Resources (Million
Resource Tonnes)
Limits Depth ASTM ---------------------------
Area Type (metres) Group Measured Indicated Inferred
---------------------------------------------------------------------
Sunrise Surface Surface to hvB to 53.8 15.7 4.9
Field 250m hvA(i)
---------------------------------------------------------------------
Sunset Surface Surface to hvB to 82.1 19.4 8.1
Field 250m hvA
---------------------------------------------------------------------
Sub-Total 135.9 35.1 13.0
---------------------------------------------------------------------
Sunrise Underground 250m to hvB to 11.2 5.2 11.2
Field 600m hvA
---------------------------------------------------------------------
Sunset Underground 250m to mhB to 34.6 27.8 9.3
Field 600m hvA
---------------------------------------------------------------------
Sub-Total 45.8 33.0 20.5
---------------------------------------------------------------------
Total 181.7 68.1 33.5
---------------------------------------------------------------------

(i) hvB to hvA - high-volatile bituminous coal B to A rank based on ASTM
D388 standards


To facilitate the estimation of resources in the Ovoot Tolgoi Property, Norwest developed geological 'block models' for the Sunrise and Sunset Fields using MineSight ® software. Key horizons (surfaces) were modeled to provide the necessary limits for volume estimation. Volumes were converted to tonnages by application of density values representative of the coal seams as derived from available coal quality data.

The independent resource estimates were prepared by Norwest Corporation, of Salt Lake City, Utah. The updated Ovoot Tolgoi surface and underground resource estimates were prepared in conformance with Canadian Institute of Mining (CIM) Standards and the requirements set out in Canada's National Instrument 43-101, and were based on drilling activities to the end of June 1 2009. A NI 43-101 technical report is expected to be filed within 45 days.

Data Verification

All data collection was done under a defined set of protocols established by the qualified persons responsible for this report. Norwest site geologists were responsible for the training and administration of data collection procedures for the 2005 and 2006 exploration programs and were responsible for reviewing all data. Norwest maintained oversight of all data collection throughout those exploration programs, and the qualified persons have visited these operations and reviewed these procedures.

Upon completion of a drill hole, the geologic and geophysical logs were reviewed by a Norwest geologist. All geologic, geophysical, and sampling data was entered and maintained in an electronic database. All mapping was entered and maintained in electronic format on a CAD-based system. Data entry of all geologic data was managed by Norwest at the project site. All electronic data is forwarded on a routine basis to Norwest's office in Salt Lake City. Results from the coal quality testing were added into the database in the Salt Lake office.

Exploration drilling data collected during 2007 and 2008 was done under the supervision of SouthGobi. Norwest visited the site during 2009 and conducted a validation of those data.

Maiden Soumber NI 43-101 Resource Estimate: New resources established in the South Gobi, Mongolia

The company also is very pleased to report that it has received an initial independent NI 43-101 compliant resource estimate for its Soumber coal project, 16 kilometres east of the company's flagship coal mine, Ovoot Tolgoi, in southern Mongolia. The estimate also was prepared by Norwest.

The Soumber resource area is estimated to contain initial measured plus indicated coal resources of 21.4 million tonnes, with an additional inferred coal resource of 55.5 million tonnes. The resource estimate incorporates exploration data up to August 11, 2009, down to a depth of 250 metres below surface.

"Soumber is very important to us. It's a totally new deposit that has the potential to be a new mine and the coal quality is really excellent. It looks quite like an Australian low-volatile hard coking coal deposit," said Mr. Molyneux. "The location is good too in terms of being very close to China and near enough to Ovoot Tolgoi to enable some common infrastructure in the event a mine is developed at Soumber."

The coal resources at Soumber are classified as bituminous coal and the rank ranges from high-volatile bituminous to medium-volatile bituminous, based on ASTM standard D388. Calorific values range between 5172 kCal/kg - 6728 kCal/kg. Coal quality data suggests that there is good potential to produce a blend or washed coking coal product from shallow (low stripping ratio) sources.

Table 5: Central Soumber in-Place Coal Resources Summary as of August 11, 2009



---------------------------------------------------------------------------
Resource ASTM Coal Measured Indicated Inferred
Area Rank (million tonnes) (million tonnes) (million tonnes)
---------------------------------------------------------------------------
Soumber Medium 13.1 8.3 55.5
volatile
bituminous(i)
---------------------------------------------------------------------------
Total 21.4 55.5
---------------------------------------------------------------------------

(i) medium-volatile bituminous coal based on ASTM D388 standards


The geologic model was developed using industry-accepted block modeling conventions using Mintec Inc. MineSight™ software. Bulk density values derived from the incremental samples from drill hole core samples were incorporated into the geologic model and subsequently used to estimate coal resource tonnages. Zones of core loss within coal seams were assigned an average density as per the judgment of the geologist. Trends in density values were interpolated and extrapolated across the areal extent of the property via the modeling process.

The independent resource estimates were prepared by Norwest Corporation, of Grand Junction, Colorado. The Soumber resource estimates were prepared in conformance with the Canadian Institute of Mining (CIM) Standards and requirements set out in Canada's NI 43-101. A NI 43-101 technical report is expected to be filed within 45 days.

The Soumber coal field can be divided into three areas (or fields), Central, East and West. Only the centre of the Soumber property is classified into compliant resources that satisfy the requirements of National Instrument 43-101. This separation is derived from the drill hole data distribution. The majority of exploration activity was focused on the Central Soumber field where a total of one hundred twelve (112) holes were drilled. The East Soumber field is located east of Central Soumber field. There are a total of sixty two (62) holes completed in the East Soumber field. The least amount of exploration was focused on the West Soumber field where fifteen (15) drill holes were completed. The company plans to initiate mine planning and file an application for a mining licence for the development of this project.

The West and East Soumber fields are high priority targets and the company plans further drilling to bring the resources into NI 43-101 compliance.

Data Verification

Staff geologists from Sapphire Geo Co. Ltd. of Ulaanbaatar, Mongolia were instructed by Norwest on data collection procedures during the early exploration stage, 2005 and 2006. Sapphire collected and recorded the data according to the western standard. The core logging, data recording and geophysical logging techniques were conducted to industry standards.

All geologic, geophysical and sampling data were reviewed and entered into an electronic database. All mapping was entered and maintained in electronic format with a CAD-based system. The geologic data was entered into an electronic system on-site. The field data was forwarded to Norwest where the results of the coal quality testing were compiled.

Mamahak Project, Indonesia, Update

SouthGobi Energy Resources also has received a revised resource update based on data acquired up to April 3, 2009 for the Mamahak coal project in East Kalimantan, Indonesia from PT SMG Consultants of Jakarta, Indonesia. PT SMG Consultants produced the original Mamahak resource estimate.

The resource update is a result of additional drilling being undertaken on the project, additional coal quality information and a new LIDAR topographic survey. The revised resource has been adjusted, primarily in the inferred category, due to excessively high strip ratios in some areas of the project that would preclude open pit mining. The revised approach is in line with the Geological Survey of Canada paper 88-21 and is also considered to be a reasonable upper limit defining the likelihood of economic extraction for the Mamahak Project. A comparison of the previously stated resource and the update is shown in the below tables.

Table 6: Mamahak In-Place Coal Resources Summary as of January 19, 2009
(Originally reported February 9, 2009)



-------------------------------------------------------
Resources at Mamahak
-----------------------------
ASTM Coal Measured Indicated Inferred
Resource Area Rank (tonnes) (tonnes) (tonnes)
-------------------------------------------------------
E (1, 2, and 3) hvA(i) 4,986,000 7,296,000 2,657,000
-------------------------------------------------------
SW hvA(i) 2,611,000
-------------------------------------------------------
Total 12,282,000 5,268,000
-------------------------------------------------------


Table 7: Mamahak In-Place Coal Resources Summary as of September 11, 2009
(Limited to a maximum vertical strip ratio of 20:1)



-------------------------------------------------------
Resources at Mamahak
-----------------------------
ASTM Coal Measured Indicated Inferred
Resource Area Rank (tonnes) (tonnes) (tonnes)
-------------------------------------------------------
E (1, 2, and 3) hvA(i) 5,460,000 2,590,000 41,000
-------------------------------------------------------
SW hvA(i) 1,440,000 57,000 12,000
-------------------------------------------------------
Total 9,547,000 53,000
-------------------------------------------------------

(i) hvA - high-volatile bituminous coal A rank based on
ASTM D388 standards


The updated independent resource estimates were prepared by PT SMG Consultants of Jakarta, Indonesia. The Mamahak E (1, 2, and 3) and SW resource estimates were prepared in conformance with the requirements set out in Canada's NI 43-101. The resource estimates have been calculated to JORC (Joint Ore Reserves Committee) standards, which in relation to these deposits classify the same measured, indicated and inferred resource areas as NI 43-101.

PT SMG Consultants will deliver to SouthGobi for public filing an amended technical report to support the revised Mamahak resource estimate as of September 11, 2009. Once delivered and filed within 45 days, the amended and restated technical report will replace the January 2009 technical report.

As SouthGobi progressed with efforts to prepare for the mining and shipment of the targeted 30,000 tonne trial cargo from Mamahak, the company became aware of the requirement for additional capital expenditure beyond what was originally budgeted to develop the project. With that in mind, SouthGobi has determined to suspend further development works at Mamahak pending a more detailed operational review.

Qualified Persons

Richard D. Tifft III, a geologist with Norwest Corporation and a Qualified Person as defined by NI 43-101, has reviewed the data underlying the resource estimate and approved the technical and scientific information pertaining to Ovoot Tolgoi and Soumber contained in this release.

Alister Horn, a mining engineer with Norwest Corporation and a Qualified Person as defined by NI 43-101, has reviewed the data underlying the reserve estimate and approved the technical and scientific information pertaining to Ovoot Tolgoi contained in this release.

Mark Manners, a geologist with PT SMG Consultants and a qualified person as defined by NI 43-101, has reviewed the data underlying the resource estimate and approved the technical and scientific information pertaining to Mamahak contained in this release.

About SouthGobi Energy Resources

SouthGobi Energy Resources is focused on exploration and development of its Permian-age metallurgical and thermal coal deposits in Mongolia's South Gobi Region. The company's flagship coal mine, Ovoot Tolgoi, is producing and selling coal to customers in China. The company plans to supply a wide range of coal products and electricity to markets in Asia.

Forward-Looking Statements: This document includes forward-looking statements. Forward-looking statements include, but are not limited to, coal products expected to be produced at Ovoot Tolgoi, potential for Ovoot Tolgoi to grow substantially, potential of Soumber to be a new mine, the company's future ability to supply coal products and electricity to markets in Asia, and other statements that are not historical facts. When used in this document, the words such as "could", "plan", "estimate", "expect", "intend", "may", "potential", "should", and similar expressions are forward-looking statements. Although SouthGobi Energy Resources believe that the expectations reflected in these forward-looking statements are reasonable, such statements involve risks and uncertainties and no assurance can be given that actual results will be consistent with these forward-looking statements. Important factors that could cause actual results to differ from these forward-looking statements are disclosed under the heading "Risk Factors" in SouthGobi Energy's Management's Discussion and Analysis of Financial Condition and Results of Operations for the year end Dec. 31, 2008, which is available at www.sedar.com.

The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this release.

Contact Information

  • SouthGobi Energy Resources Ltd.
    Steven Feldman
    Investors
    +1 604-681-6799
    or
    SouthGobi Energy Resources Ltd.
    Bob Williamson
    Media
    +1 604-681-6799
    www.southgobi.com