STRATEGICALLY LOCATED - CLOSEST COAL TO CHINA
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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
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A LEADING EXPORTER
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.
SouthGobi owns four significant coal projects in Mongolia: a producing mine, the Ovoot Tolgoi Mine; and three development projects, the Soumber Deposit, Zag Suuj Deposit and the Ovoot Tolgoi Underground Deposit. In addition, SouthGobi holds 7 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 - screening and washing
*Exploration
*Continuing focus on operational excellence
Three coal products are presently being mined or are expected to be produced at Ovoot Tolgoi and Soumber; a hard coking (or metallurgical) coal (Soumber), a direct shipping semi-soft coking coal (#5 seam - Ovoot Tolgoi), medium ash coal (screened) and a higher ash/sulphur coal (screened). Dry air separation and washing (8,9,10 seam coal) will upgrade the coal to semi-soft coking coal.
Enhancing Product Value
To further enhance product value, SouthGobi has constructed and commissioned a dry coal-handling facility ("DCHF") at Ovoot Tolgoi. The coal-handling facility will remove ash (waste rock) and enable the blending of coals from different seams to create higher-value products.
The DCHF has a capacity to process nine million tonnes of run-of-mine (ROM) coal per year. The facility includes a 300-tonne-capacity dump hopper, which will receive ROM coal to feed a rotary breaker and screens that will size coal to a maximum of 50 millimetres and reject oversize ash.
Given the potential to turn the higher-ash Sunset pit No. 8/9/10 seams coals into semi-soft coking coals at a relatively high yield, it is likely a wet-washing facility will be built at Ovoot Tolgoi in addition to the dry-air separation plant.
The DCHF will be upgraded during 2012 to include dry air separation, as well as covered load-out conveyors with fan stackers to transfer processed coals to stockpiles that will enable blending.
Wet Washing
On July 5, 2011, the company entered into an agreement with Ejin Jinda, a subsidiary of China Mongolia Coal Co. Ltd. (CMC), to toll wash coal from the Ovoot Tolgoi mine. The agreement has a duration of five years from commencement (expected in early 2012) and provides for an annual wet washing capacity of approximately 3.5 million tonnes of input raw coal. Raw higher-ash and medium-ash coals from the Ovoot Tolgoi mine will be washed at this facility. Washed coal will generally meet semi-soft coking coal specifications.
Ejin Jinda's wet washing facility is located approximately 10 kilometres inside China from the Mongolia-China border crossing at Shivee Khuren-Ceke (that is, approximately 50 kilometres from the Ovoot Tolgoi mine). Raw higher-ash and medium-ash coals with only basic processing through Ovoot Tolgoi's on-site dry coal handling facility will be transported from the Ovoot Tolgoi mine to the facility under a separate transport agreement. Based on preliminary samples, the company expects these coals can then be washed to produce coals with ash in the range of 8 per cent to 11 per cent at a yield of 85 per cent to 90 per cent. Ejin Jinda will charge the company a single toll washing fee which will cover its expenses, capital recovery and profit.
Total (Surface and Underground) Ovoot Tolgoi In-Place Coal Resource Summary as of October 31, 2011
| Area | Type | Resource Limits Depth (metres) | ASTM Group | In-Place Resources (Million Tonnes) | ||
| Measured | Indicated | Inferred | ||||
| Sunrise Field | Surface | Surface to 300m | hvB to hvA | 75.5 | 24.4 | 9.0 |
| Sunset Field | Surface | Surface to 300m | hvB to hvA | 57.8 | 35.5 | 15.0 |
| Sub-Total | 133.3 | 59.9 | 24.0 | |||
| Sunrise Field | Underground | 300m to 600m | hvB to hvA | 14.6 | 22.9 | 37.0 |
| Sunset Field | Underground | 300m to 600m | hvB to hvA | 51.2 | 20.4 | 25.0 |
| Sub-Total | 65.8 | 43.3 | 62.0 | |||
| Total | 199.1 | 103.2 | 86.0 | |||
The independent resource estimates were prepared by Minarco-MineConsult. 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 October 2011.
Quality analyses performed to date by SGS Mineral Labs in Denver, Colo., and Tianjin, China, rank Ovoot Tolgoi coal as high-volatile B-to-A bituminous coal 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 MINARCO-MINECONSULT
Total proven and probable surface coal reserves calculated at Ovoot Tolgoi as of December 11, 2011, are estimated to be 175.7 million tonnes. Approximately 68 per cent of the reserves are classified in the proven reliability or assurance category; the remaining 32 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, socio-economics, marketing and political factors that could have a material influence on Minarco's findings. Minarco is not aware of any additional factors which may materially affect its reserves estimate.
Surface Mineable Reserves as of October 31, 2011
| Reserve Area | ASTM Coal Rank | Proven (million tonnes) |
Probable (million tonnes) |
Total (million tonnes) |
| Ovoot Tolgoi Mine | hvB to hvA* | 119.1 | 56.5 | 175.7 |
The independent surface reserves estimates were prepared by Minarco-MineConsult, and were prepared in conformance with Canadian Institute of Mining (CIM) standards and the requirements set out in Canada's National Instrument 43-101.
SOUMBER COAL PROJECT: THE NEXT MINE DEVELOPMENT
The Soumber deposit consists of a single exploration licence. The Soumber field is approximately 20 kilometres east of SouthGobi's Ovoot Tolgoi complex, whilst the Biluut field lies immediately to the east of the Soumber field. The Soumber deposit is approximately 45 kilometres north of the Mongolia-China border crossing at Shivee Khuren-Ceke.
SouthGobi completed an extensive drilling program at the Soumber deposit in 2011. The drilling focused on both infill drilling to increase the confidence level of the resources, and on expanding the deposit generally eastward. The results of this program are a significant increase in the resource base in Soumber. The company intends to further define the deposit with continued exploration work while also substantially advancing the feasibility and planning for a mine at Soumber.
The deposit area is estimated to contain measured plus indicated coal resources of 137.3 million tonnes (approximately 124-per-cent increase), with an additional inferred coal resource of 83 million tonnes (approximately 26-per-cent increase).
The coal resources at Soumber are classified as bituminous coal, and the rank ranges from low-volatile bituminous coal to medium-volatile bituminous coal, based on ASTM standard D388. Calorific values range between 5,000 kilocalories per kilogram to 7,800 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 Mineral Resource Authority of Mongolia (MRAM) has issued mining licence MV-016869 to SouthGobi Resources Ltd.'s wholly owned Mongolian operating subsidiary SouthGobi Sands LLC.
Central Soumber in-Place Coal Resources Summary as of January 25, 2012
| Resource Area | ASTM Coal Rank | Measured(million tonnes) | Indicated(million tonnes) | Inferred(million tonnes) |
| Soumber,Biluut and Jarganlant Field | Medium volatile bituminous | 57.9 | 79.3 | 83.0 |
| Total | 137.2 | 83.0 | ||
The independent resource estimates were prepared by Minarco-MineConsult.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.
ZAG SUUJ DEPOSIT - NEW RESOURCES IN THE SOUTHGOBI
As part of the extensive drilling program completed in 2011, the company continued drilling in greenfield areas on its exploration licences that are known to contain coal resources. SouthGobi is pleased to announce the inaugural resource report on the Zag Suuj deposit. Zag Suuj lies approximately 150 kilometres east of the Ovoot Tolgoi complex, within the Ovoot Khural basin.
SouthGobi is pleased to report that it has received an independent NI 43-101-compliant resource estimate for its Zag Suuj deposit. The estimate also was prepared by MMC.
The deposit area is estimated to contain measured plus indicated coal resources of 17.0 million tonnes with an additional inferred coal resource of 66 million tonnes.
Zag Suuj in-place Coal Resources Summary as of December 31, 2011
| Resource Area | ASTM Coal Rank | Measured(million tonnes) | Indicated(million tonnes) | Inferred(million tonnes) |
| Zag Suuj | Low-Medium volatile bituminous | 0.0 | 17.0 | 66.0 |
| Total | 17.0 | 66.0 | ||
The independent resource estimates were prepared by Minarco-MineConsult.The Zag Suuj 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
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
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 Turquoise Hill Resources' 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
| Area | ASTM Group | In-Place Resources (Tonnes) | ||
| Measured | Indicated | Inferred | ||
| Tsagaan Tolgoi | hvBb and hvCb | 23,400,000 | 13,000,000 | 9,000,000 |
| Total | 36,400,000 | 9,000,000 | ||
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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