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|  | |  Mongolia: A New Mineral Frontier Mongolia offers tremendous mineral potential. SouthGobi Energy Resources largest shareholder, Ivanhoe Mines, has discovered the giant Oyu Tolgoi copper-gold porphyry deposit just 150km east of our main exploration targets in the West Gobi region. Oyu Tolgoi contains in-situ metal valued in excess of US$100 billion and is located within the prolific Tian Shan Gold-Copper belt. Gold production from this belt is second only to the Witwatersrand region of South Africa. The Western Gobi Property, home to SouthGobi's latest discoveries at Khongor and Naran Bulag, has an area of 24,748 square kilometres and comprises 67 mineral exploration licenses in the South Gobi region of Mongolia. The property has an east-west length of 500 kilometres and a north-south extent of up to 150 kilometres. The eastern boundary of the Western Gobi Property is about 150 kilometres west of Ivanhoe Mines' Oyu Tolgoi copper-gold deposit.
Khongor Copper-Gold Porphyry Project: A New Discovery SouthGobi discovered the Khongor porphyry copper-gold prospect during a reconnaissance exploration program in 2005. Initial mapping and rock sampling outlined widespread copper oxide mineralization at surface over an area of about 1,700 m in length and up to 325 m in width. The best rock-chip samples from a quartz stockwork in Central Creek graded 1.84% copper and 0.43 g/t gold over an 18 m interval. In December 2005 SouthGobi completed a 5-hole scout drilling program totaling 935 m. Hole KPDH-3 located in Central Creek intersected strong zones of stockwork style copper sulphide mineralization from surface to a depth of 70.3 m grading 0.67% copper and 0.16 g/t gold. Hole KPDH-4 drilled below hole KPDH-3 intersected stockwork style mineralization grading 0.3% copper and 0.08 g/t gold over 91.7 m. A major follow-up exploration program started in March 2006, including detailed geology, IP and diamond drilling. The exploration of this large and high potential porphyry copper-gold system is at an early stage. Khongor Phase 2 Drilling Phase 2 drilling provided further encouraging results from the first 10 drill holes (KPDH-6 to 15) All 10 holes intersected porphyry-style mineralization and six holes (KPDH-6, 7, 8, 9, 13 and 14) intersected high-grade hypogene porphyry copper mineralization, including a 50-metre interval grading 1 per cent copper and 0.3 gram per tonne (g/t) gold in hole KPDH-9. The phase 2 drill program was completed on July 1, 2006, and comprised 3,167 metres in 18 diamond drill holes. Phase 2 drill holes KPDH-6 to KPDH-15 targeted the Stockwork gulch area at Khongor North. During the 2005 phase I Khongor drilling at Stockwork gulch, KPDH-3 intersected strong hypogene quartz stockwork mineralization from surface to a downhole depth of 70.3 metres with a grade of 0.67 per cent copper and 0.16 g/t gold, including 21.9 metres that graded 1.77 per cent copper and 0.45 g/t gold (see news in Stockwatch dated Jan. 9, 2006). Phase 2 follow-up holes KPDH-6 to KPDH-15 were drilled on 50-metre-spaced sections progressively stepping out to the southwest from Stockwork gulch and KPDH-3 to test the extent of mineralization beneath an overlying thrust-faulted block of unmineralized sedimentary rocks (see below for drill hole location plan and sections). The first 10 holes of the phase 2 drilling program were all drilled through the overlying sediments and successfully intersected copper-gold mineralization in a quartz stockwork zone below the thrust fault. (see news release July 19 for complete table of assay results) The Khongor prospect occurs on two properties. Khongor North is located within the West Falcon Gobi Property, 100% owned by SouthGobi. Khongor South is hosted on the Tsakhir licence. On April 23, 2007, SouthGobi signed an exclusive option agreement with Gallant Minerals Ltd. that provides SouthGobi with the right to earn from Gallant an 80% interest in the Tsakhir copper, gold and molybdenum mineral exploration licence in the Gobi region of south central Mongolia. The Tsakhir licence hosts the southern extension of the Khongor porphyry copper-gold deposit. IP results indicate a large chargeability anomaly (1600 metres by 380 metres) is broadly coincident with mapped copper mineralization, porphyry style alteration and porphyry dykes. The maximum response of approximately 17 mV/V (milliseconds) above background is typical of known copper-gold porphyry deposits in Mongolia's Gobi region (see below for plans of conductivity and resistivity). The depth extent of the anomaly is 200-500 metres. The chargeability anomaly is bracketed by thrust faults to the south and east. Stockwork Gulch, where the company intersected 70.3 metres averaging 0.67% copper and 0.16 grams per tonne (g/t) gold (including 21.9 metres at 1.77% copper and 0.45 g/t gold) in Hole KPDH-03, lies at the western end of the chargeability anomaly. Outcropping mineralization at Stockwork Gulch lies immediately adjacent to the southern thrust, and IP and magnetics suggest the mineralization extends to the southwest beneath the thrust. Structural and alteration mapping of outcrops and core has resolved fault block boundaries at Stockwork Gulch. The IP survey also identified two smaller parallel zones of high chargeability and low resistivity located 800 metres to the southwest and about two kilometres along strike to the northwest. These two new targets require more detailed evaluation. Another new target area is located two kilometers south of Khongor on the Tsakhir license. The target is defined by outcropping porphyry-style quartz stockwork with associated unidirectional solidification textures within a large zone of advanced argillic alteration. Detailed mapping and sampling of this target is in progress.
Naran Bulag SouthGobi discovered 13 poorly exposed mesothermal quartz veins containing visible gold at Naran Bulag during a grass roots exploration program in 2005. The main vein system occurs over a distance of 2.5 kms and new veins have recently been discovered up to 2 kms to the northwest and 500 m to the south. Naran Bulag is a 100% owned property located about 60 kms southwest of the Khongor prospect in the Gobi region of southern Mongolia. A program of 68 trenches totaling 7,010 m was completed in late 2005 to determine the true width and strike extent of the vein system. The results confirm a series of shallow dipping veins with true widths of 0.1 m to 5.4 m and strike lengths up to 600 m. The average gold grades for individual veins ranges from 0.1 to 19.8 g/t gold and maximum sample values ranging from 0.04 to 117 g/t gold. The veins are open down-dip and on-strike. A 3,500-metre combined diamond and Reverse Circulation (RC) drilling program on the 100% owned Naran Bulag project in Mongolia started on April 23, 2006. Three blocks have been defined for RC grid drilling on the down-dip extensions of the B, A-C and D veins that host high grade gold mineralization (see SouthGobi news releases dated January 23, 2006, and February 16, 2006). The results of the first RC drilling program (see SouthGobi news release dated June 26, 2006) indicate that the best gold mineralization is in four shallow dipping, south plunging shoots within the quartz veins. The shoots are defined by a coherent envelope of combined anomalous gold and base metals which encloses all the better gold intersections. The estimated dimensions of the shoots are 30 to 60 m in width, 1 to 4 m in thickness and 90 to 130 m down plunge. All four shoots are open at depth. (see below for a plan view of the interpreted shoots) The association of gold and base metals with fracture and shear deformation of the vein quartz assists in the recognition of the gold shoots within the veins. This association suggests that the shoots within the veins are defined by an overprinting deformation event whose geometry will assist in the recognition of further shoots. The higher gold grades have a nugget-like distribution within the shoots and are commonly associated with anomalous base metal values. In order to quantify the nugget effect Asia Gold is now analyzing duplicate samples from each drill hole interval reporting anomalous gold grades associated with higher base metal values. SouthGobi also will continue exploration of two new veins discovered during the trenching program on the main veins in October-November 2005. Three representative three-kilogram rock-grab samples from the South Vein, located about 500 metres south of veins A-C and D, have assayed 20.0, 6.5 and 1.2 grams per tonne (g/t) gold. The White Hill vein, located about two kilometres west-northwest of the main Naran Bulag vein system, contains visible gold and two one-metre rock-chip samples across the vein graded 5.2 g/t gold and 6.9 g/t gold.
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