SouthGobi Sells Metal Projects To Ivanhoe

VANCOUVER–For $3 million, Ivanhoe Mines (IVN-T, IVN-N) is buying all the metal assets of its 79%-owned spinoff SouthGobi Energy Resources (SGQ-V, SGQRF-O), as well as extending it a $30-million line of credit.

The $30 million constitutes the third credit facility Ivanhoe has given SouthGobi in as many years. The previous two were either repaid or converted into shares.

Ivanhoe has set the current credit line’s interest rate at LIBOR plus 7.5 basis points.

By letting its metal properties go, SouthGobi says it can focus on its coal projects in Indonesia and Mongolia, including its now-producing Ovoot Tolgoi coal mine, about 45 km away from the Chinese border.

Like its coal properties, South- Gobi’s metal properties lie in those two countries and cover a fair amount of territory.

As of its last quarterly report for the period ending Sept. 30, South- Gobi held 28 exploration licences covering about 3,500 sq. km in Mongolia and 12 others spread over 830 sq. km in Indonesia. At that time, SouthGobi had ongoing applications on four more properties in Indonesia encompassing another 2,300 sq. km.

By and large, SouthGobi has been exploring the properties for copper, gold and silver.

During 2005 and 2006 in Mongolia, before SouthGobi ramped up its efforts to advance the Ovoot Tolgoi coal mine, the company extensively drilled for copper and gold at two properties, Khongor and Naran Bulag.

At Khongor, part of which South- Gobi optioned from Gallant Minerals and the rest of which it owns, drilling returned up to 50 metres grading 1% copper and 0.3 gram gold per tonne starting at 64 metres depth in hole 9.

To conclude an 80% option agreement on part of the Khongor property with Gallant, SouthGobi owes a $30,000 cash payment and must spend $300,000 on exploration by Aug. 15, 2009.

At Naran Bulag, one of South- Gobi’s other primary interests in Mongolia, drilling in 2006 hit as much as 2 metres grading 12 grams gold.

Lately, however, it is on projects in Indonesia that SouthGobi has concentrated most of its metal division’s efforts.

In June, drilling at the Kerta project cut up to 6 metres grading 9.6 grams gold and 23 grams silver per tonne at a depth of 119 metres.

And in July, SouthGobi began drilling at its Sulawesi project, where sampling has identified a copper-gold porhpyry. It has 90% interests in both those projects and also holds an 85% interest in Kaputusan, another porphyry project in Indonesia.

By dropping its metal division, SouthGobi can concentrate on selling coal from its flagship coal mine, Ovoot Tolgoi, and advancing its coal projects in East Kalimantan, Indonesia.

Since beginning to ship coal from Ovoot Tolgoi in September, South- Gobi has produced more than 1 million tonnes of the black stuff. As of Oct. 31, 2008, the company says cash costs per tonne of coal came in 32% under budget, at US$8.20.