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STRATEGICALLY LOCATED - CLOSEST COAL TO CHINA click to enlarge 
Click to see photos of first coal production at Ovoot Tolgoi MONGOLIA: THE SAUDI ARABIA OF 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. China's economy is growing at approximately 10% annually, demand for coal and other energy sources is outstripping supply. Unlike Canada, China has little oil reserves or natural gas. Chinese demand for "coking coals" also has risen substantially with imports likely to exceed 30 million tonnes this year as domestic supplies can't keep pace with demand from steel mills. Cleaner burning and generating more energy than traditional burning coals, coking coals are used in the production of steel and heavy irons that are the building blocks of the country's physical infrastructure. Infrastucture to access Mongolian coal is rapidily developing in China. A Chinese steel mill already has built a railway line to the Ceke border point, where a major automated railcar coal loading facility exists. A second railway line from Ceke,PRC to the industrial city of Linhe,PRC also has been completed. The Mongolian government has designated the Shivee Khuren (Ceke) border crossing a permanent border crossing which allows for distribution of Ovoot Tolgoi coal to customers in China.
Mongolia and North China Provinces near SouthGobi's Assets click to enlarge 
A LEADING EXPORTER SouthGobi is one of the largest coal producers in Mongolia in terms of coal sales for export based on the first nine months of 2009. 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. SouthGobi owns three significant coal projects in Mongolia: a producing mine, the Ovoot Tolgoi Mine; and two development projects, the Soumber Deposit and the Ovoot Tolgoi Underground Deposit. In addition, SouthGobi holds 18 mineral exploration licenses in Mongolia. Each of these assets is wholly-owned by the Company. LEADING POSITION IN THE OVOOT KHURAL BASIN Importance of the Ovoot Khural Basin: *Permian-age coal bearing basin only 40 km from China *Coal identified over 150 km strike length *Land equivalent to prime hard coking coal region of Bowen Basin in Australia (largest seaborne coking coal exporting region today) *Rail infrastructure and coal loader constructed by Chinese to access SouthGobi's leadership in the Ovoot Khural Basin: *Substantially covered by SouthGobi's exclusive mining and exploration licences *89% of SouthGobi's resources located there *Operating infrastructure in place Extracting full value from the Ovoot Khural Basin: *Expanding production at Ovoot Tolgoi Mine *Advancing regional coal projects -- near-term emphasis on Soumber *Developing Ovoot Khural Basin infrastructure *Enhancing value of our products *Exploration *Continuing focus on operational excellence Three coal products are presently being mined or are expected to be produced at Ovoot Tolgoi; a hard coking coal (or metallurgical) - a necessary ingredient in the production of steel, 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 SOUTHGOBI COMMENCES CONSTRUCTION OF COAL-HANDLING FACILITY The coal-handling facility (CHF) will allow SouthGobi to add value to its coal by removing ash or waste rock and enable the blending of coal from different seams to create higher-value products. Once commissioned (early 2011), it is intended that the CHF will operate on one 12-hour shift per day, six days per week. Annual capacity will be up to six million tonnes of coal on a one-shift-per-day basis, and operating hours can be extended as mining capacity increases. Total (Surface and Underground) Ovoot Tolgoi In-Place Coal Resource Summary as of June 1, 2009
The independent resource estimates were prepared by Norwest, 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. Quality analyses performed to date by SGS Mineral Labs in Denver, Colo., 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 kilocalories per kilogram and high-volatile A produces greater-than-7,785-kilocalorie-per-kilogram heat output. PROVEN AND PROBABLE MINABLE RESERVES ESTABLISHED AT OVOOT TOLGOI BASED ON OPEN-PIT MINE STUDY INDEPENDENTLY PREPARED BY NORWEST Total proven and probable surface coal reserves calculated at Ovoot Tolgoi as of July 1, 2009, are estimated to be 114.1 million tonnes. Approximately 92 per cent of the reserves are classified in the proven reliability or assurance category; the remaining 8 per cent are in the probable category. The estimate of resources and reserves was generated using the best information available concerning issues related to environmental, permitting, legal, title, taxation, socioeconomics, marketing and political factors that could have a material influence on Norwest's findings. Surface Mineable Reserves as of July 1, 2009
The independent surface reserves estimates were prepared by Norwest Corp., 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 43-101. 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 comprises a midsized (13.5-cubic-metre) hydraulic shovel and (10-cubic-metre) 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-cubic-metre bucket) is on site. The current prefeasibility study being undertaken by Norwest proposes that this equipment continue to be used, with primary stripping to be accomplished using the larger 34-cubic-metre bucket-sized HMS matched with 218-tonne-class mining trucks (Terex MT4400). Norwest has studied prefeasibility based on considering ramping up surface production to eight million tonnes per year by 2012. Feasibility of underground mining has not been determined in this study.
NORWEST STUDY PLANNED SURFACE
PRODUCTION RAMP-UP SCHEDULE
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 (that is, 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 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 net present values at various discount rates ranging from undiscounted to 20 per cent, 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.
OVOOT TOLGOI NPV AT VARIOUS DISCOUNT RATES (EIGHT MILLION TONNES PER YEAR)
SOUMBER COAL PROJECT: THE NEXT MINE DEVELOPMENT The Soumber resource area, 16 kilometres east of the company's flagship coal mine, Ovoot Tolgoi (see map), in southern Mongolia, 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 Aug. 11, 2009, down to a depth of 250 metres below surface. 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 5,172 kilocalories per kilogram -- 6,728 kilocalories per kilogram. Coal quality data suggest that there is good potential to produce a blend or washed coking coal product from shallow (low-stripping-ratio) sources. 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 112 holes were drilled. The East Soumber field is located east of Central Soumber field. There are a total of 62 holes completed in the East Soumber field. The least amount of exploration was focused on the West Soumber field, where 15 drill holes were completed. The West and East Soumber fields are high-priority targets and the company has commenced further drilling to bring the resources into National Instrument 43-101 compliance. The company plans to initiate mine planning and file an application for a mining licence for the development of this project. Central Soumber in-Place Coal Resources Summary as of August 11, 2009
The independent resource estimates were prepared by Norwest, of Grand Junction, Colo. The Soumber resource estimates were prepared in conformance with the Canadian Institute of Mining (CIM) standards and requirements set out in Canada's National Instrument 43-101. UNDERGROUND MINING POTENTIAL AT OVOOT TOLGOI Although much of the work of the 2007-2008 exploration program concentrated on the surface open-pit development, a secondary focus at Ovoot Tolgoi was to delineate resources that may be amenable to extraction by bulk underground mining methods. 2007 Drill results continued to identify direct shipping coking and semi-soft coals at depth. SouthGobi's objective is to mine the deeper extension of the No. 5 coal seam structure at Ovoot Tolgoi below the coal resources delineated in the planned surface mine. The No. 5 coal seam ranges in dip from 30 to 55 degrees and is open to depth and along strike. Highlights of the 2007 deep drilling include: • Hole NSW 07-80C intercepting 210.6 metres (148.9 metres estimated true thickness) of high-quality coal from 181.0 metres to 391.6 metres • Hole NSW 07-89C intercepting 158.2 metres (111.9 metres estimated true thickness) of high-quality coal from 238.4 metres to 396.6 metres • Hole NSW 07-82C intercepting 94.0 metres (66.5 metres estimated true thickness) of high-quality coal from 440.1 metres to 534.1 metres • Coal quality ranges from 7527 kCal/kg (kilocalorie-per-kilogram) to 7778 kCal/kg with very low ash and sulphur In June, 2007, Norwest completed a study of Ovoot Tolgoi's underground mining potential as part of SouthGobi's plans for the development of Ovoot Tolgoi's underground coal seams -- prompted by increasing demand for high-quality metallurgical and thermal coal from northern China. The 2007 drill results continue to identify direct shipping coking and semi-soft coals at depth, beneath the lower boundaries of the planned open pits at the southeast and west fields. TSAGAAN TOLGOI COAL DEPOSIT: BUILDING RESOURCES TO POWER OYU TOLGOI AND THE SOUTH GOBI On February 25, 2008 the company announced an initial independent National Instrument 43-101 compliant resource estimate for its Tsagaan Tolgoi coal project in southern Mongolia. The project contains initial measured plus indicated coal resources of 36.4 million tonnes, with an additional inferred coal resource of approximately nine million tonnes. A mining licence was issued for Tsagaan Tolgoi by Mongolian authorities in August 2009. Tsagaan Tolgoi or "White Hill" is SouthGobi Resources' second coal deposit in southern Mongolia to have a NI 43-101 resource estimate. The company's primary mine development project --- Ovoot Tolgoi --- is located 415 kilometres to the south west of Tsagaan Tolgoi. Tsagaan Tolgoi is in the Omnigovi Aimag approximately 570 kilometres south of the nation's capital of Ulaanbaatar and 113 kilometres southeast of the provincial capital of Dalanzagad. The deposit has the potential to supply any future coal-fired power plant that may be developed to produce electricity for Ivanhoe Mines' planned Oyu Tolgoi copper-gold mining complex, which is approximately 115 kilometres northeast of Tsagaan Tolgoi. Coal at Tsagaan Tolgoi is found in a steeply dipping sedimentary basin approximately 4 by 20 kilometres in size located on two contiguous exploration licences covering an area of 8,820 hectares. The coal rank is high volatile B and C bituminous. Eight main coal seams with multiple subseams have been found at Tsagaan Tolgoi. Apparent thicknesses vary from 1.2 metres up to 24.7 metres. To date, 86 reverse circulation and rotary holes as well as 28 core holes have been drilled on the property. Additional resource potential exists along strike and at depth. Surface Coal Resources Summary For Tsagaan Tolgoi As Of February 25, 2008
The independent estimates were prepared by Norwest Corporation, of Salt Lake City, USA. The Tsagaan Tolgoi 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 through the end of 2006. | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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