Alexander Molyneux, President and CEO of SouthGobi Energy Resources
Ltd. (TSX VENTURE: SGQ), announced today that a new, independent
estimate prepared by Norwest Corporation, of Salt Lake City, Utah,
has upgraded Measured and Indicated coal resources contained at the
company's Ovoot Tolgoi Mine in southern Mongolia to the Proven and
Probable Mineral Reserve categories.
Total Proven and Probable surface coal reserves calculated at
Ovoot Tolgoi as of July 1, 2009, are estimated to be 114.1 million
tonnes (Table 1). Approximately 92% of the reserves are classified
in the Proven reliability or assurance category; the remaining 8%
are in the Probable category.
Three coal products are presently being mined or are expected to
be produced at Ovoot Tolgoi; a hard coking (or metallurgical) coal,
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.
Table 1: Surface Mineable Reserves as of July 1, 2009
-----------------------------------------------------------
Proven Probable Total
ASTM Coal (million (million (million
Reserve Area Rank tonnes) tonnes) tonnes)
-----------------------------------------------------------
Ovoot Tolgoi hvB to hvA(i) 105.0 9.1 114.1
Mine
-----------------------------------------------------------
(i) hvB to hvA - high-volatile bituminous coal B to A rank
based on ASTM D388 standards
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 (i.e., optimized
for Net Present Value, NPV) portions of the deposit. With a
demonstrated economic viability, a portion of the resource base may
be classified as proven and probable reserves.
"As we had expected, the Norwest study has confirmed the
economics of the Ovoot Tolgoi Measured and Indicated surface
resources, and upgraded them to Proven and Probable Reserves," said
Mr. Molyneux. "We have now sold more than one million tonnes of
Ovoot Tolgoi coal since we started sales around 12-months ago and
the Norwest study reaffirms the mine's potential to grow
substantially."
The independent surface reserves estimates were prepared by
Norwest Corporation, 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 (NI)
43-101. A NI 43-101 technical report is expected to be filed within
45 days.
Estimate of Reserves at Ovoot Tolgoi Coal Mine, Mongolia
This 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 Norwest's findings. Norwest is not aware of any
additional factors which may affect our reserves estimate.
Previous work by Norwest has been recently repeated to take into
account the additional drilling and updated geologic model and
resources base.
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 is comprised of a mid-sized (13.5 m3) hydraulic
shovel and (10 m3) 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 m3 bucket)
is on-site. The current pre-feasibility study being undertaken by
Norwest proposes that this equipment continue to be used, with
primary stripping to be accomplished using the larger 34 m3
bucket-sized HMS matched with 218t-class mining trucks (Terex
MT4400).
Norwest has studied pre-feasibility based on considering ramping
up surface production to eight million tonnes per year by 2012, as
shown in Table 2. Feasibility of underground mining has not been
determined in this study.
Table 2: Planned Surface Production Ramp-up Schedule
-------------------------
Planned Coal
Period Production
-------------------------
2009 1,000,000 tonnes
-------------------------
2010 4,000,000 tonnes
-------------------------
2011 6,500,000 tonnes
-------------------------
2012 + 8,000,000 tonnes
-------------------------
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 (i.e., 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 (NPV) 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 NPVs at various discount rates ranging
from undiscounted to 20%, 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.
Table 3: Ovoot Tolgoi NPV at Various Discount Rates (8 million
tonnes per year)
--------------------------------------------------------------------------
Interest Rate 0% 8% 10% 12% 15% 20%
--------------------------------------------------------------------------
Net Present Value 2,320,177 1,156,318 994,467 862,322 706,242 523,565
(US$000)
--------------------------------------------------------------------------
New NI 43-101 Ovoot Tolgoi Resource Estimate: Total Measured and
Indicated coal resources at 249.8 million tonnes, with an
additional inferred resource of 33.5 million tonnes
SouthGobi also is pleased to announce that the company has
received an updated independent Nl 43-101 compliant resource
estimate for the Ovoot Tolgoi property. Ovoot Tolgoi surface and
underground resources contain measured plus indicated coal
resources of 249.8 million tonnes, with an additional inferred coal
resource of 33.5 million tonnes. The Mineral Resources (Table 4)
are inclusive of the Mineral Reserves (Table 1).
Ovoot Tolgoi resources are found in two different resource
areas, referred to as the Sunrise and Sunset Fields (formerly the
South-East and West Fields, respectively). The resources identified
have been determined to be suitable for surface mining to a maximum
depth of 250 metres below surface and potential underground mining
between a depth of 250 metres below surface to a maximum depth of
600 metres. The resource estimate is current as of June 1,
2009.
Quality analyses performed to date by SGS Mineral Labs in
Denver, Colorado 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 kCal/kg and
high-volatile A produces greater than 7,785 kCal/kg heat
output.
Table 4: Total (Surface and Underground) Ovoot Tolgoi In-Place
Coal Resource Summary as of June 1, 2009
---------------------------------------------------------------------
In-Place Resources (Million
Resource Tonnes)
Limits Depth ASTM ---------------------------
Area Type (metres) Group Measured Indicated Inferred
---------------------------------------------------------------------
Sunrise Surface Surface to hvB to 53.8 15.7 4.9
Field 250m hvA(i)
---------------------------------------------------------------------
Sunset Surface Surface to hvB to 82.1 19.4 8.1
Field 250m hvA
---------------------------------------------------------------------
Sub-Total 135.9 35.1 13.0
---------------------------------------------------------------------
Sunrise Underground 250m to hvB to 11.2 5.2 11.2
Field 600m hvA
---------------------------------------------------------------------
Sunset Underground 250m to mhB to 34.6 27.8 9.3
Field 600m hvA
---------------------------------------------------------------------
Sub-Total 45.8 33.0 20.5
---------------------------------------------------------------------
Total 181.7 68.1 33.5
---------------------------------------------------------------------
(i) hvB to hvA - high-volatile bituminous coal B to A rank based on ASTM
D388 standards
To facilitate the estimation of resources in the Ovoot Tolgoi
Property, Norwest developed geological 'block models' for the
Sunrise and Sunset Fields using MineSight ® software. Key horizons
(surfaces) were modeled to provide the necessary limits for volume
estimation. Volumes were converted to tonnages by application of
density values representative of the coal seams as derived from
available coal quality data.
The independent resource estimates were prepared by Norwest
Corporation, 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. A
NI 43-101 technical report is expected to be filed within 45
days.
Data Verification
All data collection was done under a defined set of protocols
established by the qualified persons responsible for this report.
Norwest site geologists were responsible for the training and
administration of data collection procedures for the 2005 and 2006
exploration programs and were responsible for reviewing all data.
Norwest maintained oversight of all data collection throughout
those exploration programs, and the qualified persons have visited
these operations and reviewed these procedures.
Upon completion of a drill hole, the geologic and geophysical
logs were reviewed by a Norwest geologist. All geologic,
geophysical, and sampling data was entered and maintained in an
electronic database. All mapping was entered and maintained in
electronic format on a CAD-based system. Data entry of all geologic
data was managed by Norwest at the project site. All electronic
data is forwarded on a routine basis to Norwest's office in Salt
Lake City. Results from the coal quality testing were added into
the database in the Salt Lake office.
Exploration drilling data collected during 2007 and 2008 was
done under the supervision of SouthGobi. Norwest visited the site
during 2009 and conducted a validation of those data.
Maiden Soumber NI 43-101 Resource Estimate: New resources
established in the South Gobi, Mongolia
The company also is very pleased to report that it has received
an initial independent NI 43-101 compliant resource estimate for
its Soumber coal project, 16 kilometres east of the company's
flagship coal mine, Ovoot Tolgoi, in southern Mongolia. The
estimate also was prepared by Norwest.
The Soumber resource area 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 August 11,
2009, down to a depth of 250 metres below surface.
"Soumber is very important to us. It's a totally new deposit
that has the potential to be a new mine and the coal quality is
really excellent. It looks quite like an Australian low-volatile
hard coking coal deposit," said Mr. Molyneux. "The location is good
too in terms of being very close to China and near enough to Ovoot
Tolgoi to enable some common infrastructure in the event a mine is
developed at Soumber."
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 5172 kCal/kg - 6728 kCal/kg. Coal quality data
suggests that there is good potential to produce a blend or washed
coking coal product from shallow (low stripping ratio) sources.
Table 5: Central Soumber in-Place Coal Resources Summary as of
August 11, 2009
---------------------------------------------------------------------------
Resource ASTM Coal Measured Indicated Inferred
Area Rank (million tonnes) (million tonnes) (million tonnes)
---------------------------------------------------------------------------
Soumber Medium 13.1 8.3 55.5
volatile
bituminous(i)
---------------------------------------------------------------------------
Total 21.4 55.5
---------------------------------------------------------------------------
(i) medium-volatile bituminous coal based on ASTM D388 standards
The geologic model was developed using industry-accepted block
modeling conventions using Mintec Inc. MineSight(TM) software. Bulk
density values derived from the incremental samples from drill hole
core samples were incorporated into the geologic model and
subsequently used to estimate coal resource tonnages. Zones of core
loss within coal seams were assigned an average density as per the
judgment of the geologist. Trends in density values were
interpolated and extrapolated across the areal extent of the
property via the modeling process.
The independent resource estimates were prepared by Norwest
Corporation, of Grand Junction, Colorado. The Soumber resource
estimates were prepared in conformance with the Canadian Institute
of Mining (CIM) Standards and requirements set out in Canada's NI
43-101. A NI 43-101 technical report is expected to be filed within
45 days.
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 one hundred twelve (112) holes were drilled. The East
Soumber field is located east of Central Soumber field. There are a
total of sixty two (62) holes completed in the East Soumber field.
The least amount of exploration was focused on the West Soumber
field where fifteen (15) drill holes were completed. The company
plans to initiate mine planning and file an application for a
mining licence for the development of this project.
The West and East Soumber fields are high priority targets and
the company plans further drilling to bring the resources into NI
43-101 compliance.
Data Verification
Staff geologists from Sapphire Geo Co. Ltd. of Ulaanbaatar,
Mongolia were instructed by Norwest on data collection procedures
during the early exploration stage, 2005 and 2006. Sapphire
collected and recorded the data according to the western standard.
The core logging, data recording and geophysical logging techniques
were conducted to industry standards.
All geologic, geophysical and sampling data were reviewed and
entered into an electronic database. All mapping was entered and
maintained in electronic format with a CAD-based system. The
geologic data was entered into an electronic system on-site. The
field data was forwarded to Norwest where the results of the coal
quality testing were compiled.
Mamahak Project, Indonesia, Update
SouthGobi Energy Resources also has received a revised resource
update based on data acquired up to April 3, 2009 for the Mamahak
coal project in East Kalimantan, Indonesia from PT SMG Consultants
of Jakarta, Indonesia. PT SMG Consultants produced the original
Mamahak resource estimate.
The resource update is a result of additional drilling being
undertaken on the project, additional coal quality information and
a new LIDAR topographic survey. The revised resource has been
adjusted, primarily in the inferred category, due to excessively
high strip ratios in some areas of the project that would preclude
open pit mining. The revised approach is in line with the
Geological Survey of Canada paper 88-21 and is also considered to
be a reasonable upper limit defining the likelihood of economic
extraction for the Mamahak Project. A comparison of the previously
stated resource and the update is shown in the below tables.
Table 6: Mamahak In-Place Coal Resources Summary as of January
19, 2009
(Originally reported February 9, 2009)
-------------------------------------------------------
Resources at Mamahak
-----------------------------
ASTM Coal Measured Indicated Inferred
Resource Area Rank (tonnes) (tonnes) (tonnes)
-------------------------------------------------------
E (1, 2, and 3) hvA(i) 4,986,000 7,296,000 2,657,000
-------------------------------------------------------
SW hvA(i) 2,611,000
-------------------------------------------------------
Total 12,282,000 5,268,000
-------------------------------------------------------
Table 7: Mamahak In-Place Coal Resources Summary as of September
11, 2009
(Limited to a maximum vertical strip ratio of 20:1)
-------------------------------------------------------
Resources at Mamahak
-----------------------------
ASTM Coal Measured Indicated Inferred
Resource Area Rank (tonnes) (tonnes) (tonnes)
-------------------------------------------------------
E (1, 2, and 3) hvA(i) 5,460,000 2,590,000 41,000
-------------------------------------------------------
SW hvA(i) 1,440,000 57,000 12,000
-------------------------------------------------------
Total 9,547,000 53,000
-------------------------------------------------------
(i) hvA - high-volatile bituminous coal A rank based on
ASTM D388 standards
The updated independent resource estimates were prepared by PT
SMG Consultants of Jakarta, Indonesia. The Mamahak E (1, 2, and 3)
and SW resource estimates were prepared in conformance with the
requirements set out in Canada's NI 43-101. The resource estimates
have been calculated to JORC (Joint Ore Reserves Committee)
standards, which in relation to these deposits classify the same
measured, indicated and inferred resource areas as NI 43-101.
PT SMG Consultants will deliver to SouthGobi for public filing
an amended technical report to support the revised Mamahak resource
estimate as of September 11, 2009. Once delivered and filed within
45 days, the amended and restated technical report will replace the
January 2009 technical report.
As SouthGobi progressed with efforts to prepare for the mining
and shipment of the targeted 30,000 tonne trial cargo from Mamahak,
the company became aware of the requirement for additional capital
expenditure beyond what was originally budgeted to develop the
project. With that in mind, SouthGobi has determined to suspend
further development works at Mamahak pending a more detailed
operational review.
Qualified Persons
Richard D. Tifft III, a geologist with Norwest Corporation and a
Qualified Person as defined by NI 43-101, has reviewed the data
underlying the resource estimate and approved the technical and
scientific information pertaining to Ovoot Tolgoi and Soumber
contained in this release.
Alister Horn, a mining engineer with Norwest Corporation and a
Qualified Person as defined by NI 43-101, has reviewed the data
underlying the reserve estimate and approved the technical and
scientific information pertaining to Ovoot Tolgoi contained in this
release.
Mark Manners, a geologist with PT SMG Consultants and a
qualified person as defined by NI 43-101, has reviewed the data
underlying the resource estimate and approved the technical and
scientific information pertaining to Mamahak contained in this
release.
About SouthGobi Energy Resources
SouthGobi Energy Resources is focused on exploration and
development of its Permian-age metallurgical and thermal coal
deposits in Mongolia's South Gobi Region. The company's flagship
coal mine, Ovoot Tolgoi, is producing and selling coal to customers
in China. The company plans to supply a wide range of coal products
and electricity to markets in Asia.
Forward-Looking Statements: This document includes
forward-looking statements. Forward-looking statements include, but
are not limited to, coal products expected to be produced at Ovoot
Tolgoi, potential for Ovoot Tolgoi to grow substantially, potential
of Soumber to be a new mine, the company's future ability to supply
coal products and electricity to markets in Asia, and other
statements that are not historical facts. When used in this
document, the words such as "could", "plan", "estimate", "expect",
"intend", "may", "potential", "should", and similar expressions are
forward-looking statements. Although SouthGobi Energy Resources
believe that the expectations reflected in these forward-looking
statements are reasonable, such statements involve risks and
uncertainties and no assurance can be given that actual results
will be consistent with these forward-looking statements. Important
factors that could cause actual results to differ from these
forward-looking statements are disclosed under the heading "Risk
Factors" in SouthGobi Energy's Management's Discussion and Analysis
of Financial Condition and Results of Operations for the year end
Dec. 31, 2008, which is available at www.sedar.com.
The TSX Venture Exchange has not reviewed and does not accept
responsibility for the adequacy or accuracy of this release.
Contacts: SouthGobi Energy Resources Ltd. Steven Feldman
Investors +1 604-681-6799 SouthGobi Energy Resources Ltd. Bob
Williamson Media +1 604-681-6799 www.southgobi.com
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