Coal

Mongolia's vast reserves of high-quality coal, combined with its close proximity to China, the world's largest consumer of coal, and high demand Asian markets - make Mongolia a growing strategic player in the global coal market. Mongolia plays an important, expanding role in powering China's heavy industries and coal-fired generating capacity.

SouthGobi is one of the largest coal producers in Mongolia. Operations focus on mining, development and exploration of coking and thermal coals in Mongolia's South Gobi Province to supply premium quality coals to customers in China.

The Company owns the following significant operating coal mine and coal projects in Mongolia: the Ovoot Tolgoi Mine, the Soumber Deposit, the Zag Suuj Deposit. These mine and projects are located in the Umnugobi Aimag (South Gobi Province) of Mongolia, in close proximity to the Mongolia-China border.

Strategically Located - Closest Coal To China

Ovoot Tolgoi Mine

The Ovoot Tolgoi Mine, strategically located approximately 40km from the Shivee Khuren-Ceke crossing at the Mongolia-China border ("Shivee Khuren Border Crossing"), is the Company's flagship asset. The Ovoot Tolgoi Mine has two distinct areas, namely the Sunrise and Sunset Pits.

SouthGobi commenced mining at Ovoot Tolgoi's Sunset Pit in April 2008 and commenced coal sales in September 2008. In August 2011, the Company commenced mining and sales at Ovoot Tolgoi's Sunrise Pit. Products from the Ovoot Tolgoi Mine include coals with coking (or metallurgical) applications, primarily a raw semi-soft coking coal together with raw medium and higher-ash coals, which can be washed and blended into semi-soft coking coal. The Ovoot Tolgoi Mine is covered by a single 9,308 hectare ("ha") mining license and a corresponding permit to mine until 2037.

Measured and Indicated Resources have been estimated at 302.2 million tonnes (“Mt”) for the Ovoot Tolgoi Coal Deposit as of December 31, 2016, including Measured Resources of 201.9 Mt and Indicated Resources of 100.3 Mt. There are also Inferred Resources of 89.0 Mt.

Reserves, which are included within the above Measured and Indicated Resources of 302.2 Mt, have been estimated at 114.1 Mt for the Ovoot Tolgoi Coal Deposit as of December 31, 2016, including Proven Reserve of 99.5 Mt and Probable Reserve of 14.6 Mt.

The latest independent NI 43-101 technical report titled “NI 43-101 Technical Report for the Ovoot Tolgoi Coal Deposit, Mongolia” and dated May 15, 2017, is available at SEDAR at www.sedar.com and in the Technical Reports section.

Ovoot Tolgol Deposit – Surface Resource Estimate    
Resource (Mt)
Coalfield Seam Group Measured Indicated Inferred
Sunrise Pit (depth <300m) 7 2.2 2.9 2.0
6 3.4 4.8 4.2
5U 39.6 20.5 22.6
5L 18.2 4.1 1.0
4 0.4 0.7 0.6
subtotal 63.8 33.0 30.4
Sunset Pit (depth <300m) 11 0.1
10 8.8 2.1 0.1
9 17.8 3.4 0.2
8 16.4 3.2 0.3
5U 25.6 6.3 0.3
5L 11.8 2.3 0.8
subtotal 80.5 17.3 1.7
Grand Total 144.3 50.3 32.1

Ovoot Tolgol Deposit – Underground Resource Estimate    
Resource (Mt)
Coalfield Seam Group Measured Indicated Inferred
Sunrise (depth 300m to 500m) 5U 2.0 4.9 13.1
5L 6.0 12.0 25.0
subtotal 8.0 16.9 38.1
Sunset (depth 300m to 500m) 10 3.0 1.9
9 6.2 4.6 0.4
8 6.9 3.8 2.2
5U 27.9 14.9 3.4
5L 5.6 7.9 12.8
subtotal 49.6 33.1 18.8
Grand Total 57.6 50.0 56.9

Ovoot Tolgoi Deposit – Reserve Estimate    
Reserve (Mt)
Pit Seam Group Proven Probable Total
Sunrise Pit 7 0.4 0.5 0.9
6 1.7 1.4 3.1
5U 29.3 6.3 35.6
5L 12.4 1.7 14.1
4 0.4 0.5 0.5
subtotal 44.3 10.3 54.6
Sunset Pit 11 0.1 0.1
10 5.0 0.6 5.6
9 10.2 0.5 10.7
8 10.4 0.5 10.9
5U 21.1 1.8 22.9
5L 8.6 0.9 9.5
subtotal 55.2 4.3 59.5
Grand Total 99.5 14.6 114.1

Soumber Deposit

The Soumber Deposit, comprising the Central Soumber, East Soumber, Biluut, South Biluut and Jargalant Fields, is located approximately 20km east of the Ovoot Tolgoi Mine. It lies within the administrative units of Gurvantes and Noyon Soums in the Umnugobi Aimag (South Gobi Province), approximately 50km northeast of the Shivee Khuren Border Crossing. The proximity of the Soumber Deposit to the Ovoot Tolgoi Mine will allow any future mining operation at the Soumber Deposit to share existing infrastructure with the Ovoot Tolgoi Mine.

On March 25, 2013, the Company reported an updated NI 43-101 compliant independent resource estimate prepared by RungePincockMinarco (RPM). RPM estimated that the Soumber Deposit contains measured coal resources of 62.4 million tonnes, indicated coal resources of 110.3 million tonnes and inferred coal resources of 123.0 million tonnes as at January 10, 2013. Approximately 76% of the Soumber resource is located above 300m and is amenable to surface mining.

Soumber deposit in-Place Coal Resources Summary as of March 25, 2013

Resource Area ASTM Coal Rank In-Place Resources (million tonnes)
Measured Indicated Inferred
Soumber, Biluut Medium volatile bituminous 62 85 57.0
Jargalant and South Biluut field Medium volatile bituminous 26 66.0
Subtotal 62 110 123.0
TOTAL 173 123.0

The coal rank at the Soumber Deposit is low to medium volatile bituminous based on the ASTM D388 standard producing between 5,000 to 7,800 kcal/kg of heat output. Laboratory data demonstrated that some of the coal benches exhibit potential coking coal characteristics.

On July 6, 2011, MRAM issued the Company a mining license pertaining to the Soumber Deposit. The 10,993ha mining license was granted for an initial term of 30 years with an option for two 20 year extensions. In addition to the existing mining license, the Company also holds two exploration licenses pertaining to certain areas associated with the Soumber Deposit for which pre-mining agreements ("PMA") have been issued.

Zag Suuj Deposit

The Zag Suuj Deposit, located approximately 150km east of the Ovoot Tolgoi Mine and approximately 80km north of the Mongolia-China border, lies within the administrative units of Noyon and Bayandalai Soums in the Umnugobi Aimag (South Gobi Province).

On March 25, 2013, the Company reported an updated NI 43-101 compliant independent resource estimate for the Zag Suuj Deposit prepared by RPM. RPM estimated that the Zag Suuj Deposit contains indicated coal resources of 21.5 million tonnes and inferred coal resources of 84.0 million tonnes as at January 10, 2013. The entire Zag Suuj resource is located above 300m and is amenable to surface mining.

Resource Area ASTM Coal Rank In-Place Resources (million tonnes)
Measured Indicated Inferred
Zag Suuj Low-Medium volatile bituminous 21.5 84.0
TOTAL 21.5 84.0

The coal rank at the Zag Suuj Deposit ranges between low to medium volatile bituminous coal based on the ASTM D388 standard. The average calorific value for individual coal seams ranges between 5,600 and 6,100 kcal/kg (ad).

The Company holds two exploration licenses pertaining to the Zag Suuj Deposit for which PMAs were issued on August 14, 2013 by MRAM.