Ivanhoe contemplates Mongolian coal development

Vancouver – Buoyant coal prices, driven largely by unquenched demand from China, has prompted Ivanhoe Mines (IVN-T) to evaluate developing projects of the fuel in the South Gobi region of Mongolia, where it already has extensive property holdings.

A year-long review of prospective areas of the southern Gobi, including large sections of the company’s 118,000-sq-km land holdings, has identified three major coal-bearing basins.

The coal-bearing stratigraphy in the region is of Permian age, similar to the extensive Bowen and Sydney basins of Australia.

On the most southerly of the basins, located about 40 km from the Chinese border, a small-scale independent operation is exploiting a 60-metre thick seam that is exposed in outcrop. The seam has been traced along strike onto Ivanhoe Mines’ ground, which completely surrounds the operation producing metallurgical grade coal, and extends intermittently for about 120 km. The company’s exploration program, including drilling, shows a significant portion of the basin sits on its mineral licences.

Ivanhoe is also considering joint development of the massive Tavan Tolgoi coal project, in conjunction with its Oyu Tolgoi copper-gold deposit located 140 km to the southeast. Tavan Tolgoi occurs in a 90-sq-km sub-basin containing both thermal and metallurgical grade coals. Government estimates have outlined about five billion tonnes of resource (non-NI43-101 compliant), of which 2.8 billion tonnes are thought to be amenable to open pit mining up to a depth of 340 metres. The late-Permian coal-bearing sequence is up to 965 metres thick in the central portion of the basin. There are 16 coal seams identified, ranging from between 2 to 72 metres thick within units of intercalated sandstone, siltstone and conglomerates. Within the deepest, central portion of the basin, the coal beds have an aggregate thickness of 163 metres.

Tavan Tolgoi, which has only seen small scale development, appears on the Mineral Resources Authority of Mongolia (MRAM) Investment Opportunities listing as a project requiring significant capital investment to initiate larger scale operations.

Ivanhoe Mines sees the project as a potential fuel source for power generation at Oyu Tolgoi, as well as a metallurgical coal supplier to Chinese steel mills which are experiencing unprecedented growth rates. Joint development of the two projects could enjoy shared infrastructure costs on a number of fronts.

On a separate issue, the company has received its third payment of US$12.5-million from the Mongolian government for the US$50-million loan that was advanced by Ivanhoe last year to help the country pay down its Soviet-era debt. The final payment is anticipated by the end of 2004, upon maturity of the loan.

As of latest figures, the company reports 292.3 million shares outstanding giving it a market capitalization of about $2.35 billion at the recent trading level of $8.05 per share. The issue is off over a dollar from its recent seven-month high of $9.20.