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13 July 2008

Ovoot Tolgoi Coal Mine

The Ovoot Tolgoi mine is in the southwest corner of the Omnigovi Aimag (South Gobi province), within the Gurvantes Soum
The Ceke border crossing will allow daily distribution of Ovoot Tolgoi coal to customers in China.
Annual production at the Ovoot Tolgoi mine is expected to be 1,000,000t for 2008.
All of the equipment at the Ovoot Tolgoi site is diesel powered.
Coal from Ovoot Tolgoi will be shipped and sold without processing.

The Ovoot Tolgoi mine is in the southwest corner of the Omnigovi Aimag (South Gobi province), within the Gurvantes Soum (township), 320km southwest of the provincial capital of Dalanzadgad and 950km south of the national capital, Ulaanbaatar.

The mine is owned by SouthGobi Sands LLC, a SouthGobi Energy Resources (SGER) wholly-owned and Mongolian-registered subsidiary. SGER itself, formerly called Asia Gold Corp, is about 84% owned by Canada’s Ivanhoe Mines.

The company began mining and stockpiling coal in April 2008, and deliveries to customers in China began during the third quarter after the mine’s official opening on 4 June 2008.

The Chinese have already built a railway line to the border crossing at Ceke, where an automated railcar loading facility opened in 2007. The Mongolian government is turning Ceke into a full-time crossing that will allow daily distribution of Ovoot Tolgoi coal to customers in China.

Capital costs to start production are about C$45m. In January and February 2008, SGER raised about C$118m through share agreements, then in April and May 2008 it entered into subscription agreements with Monnis International, its Mongolian-based mining equipment supplier. These tranches of financing raised C$24.9m, and SGER intends to use part of the proceeds from these and the earlier offerings to develop and expand Ovoot Tolgoi.

GEOLOGY

The region is dominated by elongate, east-west trending mountain ranges and intervening basins. The basins consist of sediments of Late Cretaceous to Permian age, overlain by relatively thin Quaternary gravel layer or thin Aeolian deposit. The mountain ranges consist mostly of crystalline basement rocks dominated by immediate to high-angle faults that show evidence for compressional as well as extensional movement.

The coal-bearing rocks are late Permian in age. The most prominent feature relating to the Ovoot Tolgoi deposit is the arcuate, east-west trending Ovoot Tolgoi fault.

The coal is of high-volatile bituminous B to A rank, suitable for high-quality thermal purposes. Seam intervals have been identified that may be suitable for a metallurgical blend or as semi-soft coking coal.

RESOURCES

Current in-place coal resources, in accordance with National Instrument 43–101, are about 150Mt of measured and indicated resources, and an additional 29Mt of inferred resources.

PRODUCTION

The coal is being mined using open-pit methods, and will be shipped and sold without processing. Annual production is expected to be 1,000,000t for 2008, rising to 8,000,000t by 2012.

“As of June 2008, all the equipment at the site is diesel powered and the facilities are being run on gen sets.”

As of June 2008, all the equipment at the site is diesel powered and the facilities are being run on gen sets. Additional electrical power is available from a powerline distributing power from China to the neighbouring MAK-Qin coal mine and the company plans to sign a deal to bring in power from this line.

While there is currently no surface water available in the immediate area of Ovoot Tolgoi, the company says supplies should be plentiful as a consequence of dewatering the pit.

A $5m drilling programme is planned to start in the second quarter of 2008, the objective of which will be to delineate an underground resource at the project to increase its total output.

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