SouthGobi expands footprint in Mongolia with strategic investment

SouthGobi Resources (SGQ-T, 1878-SEHK) hopes to replicate its own success story through a strategic investment in an Australian junior with coal resources in Mongolia.

The Vancouver-headquartered coal producer is acquiring a roughly 19.9% stake in Aspire Mining (AKM-A) for about A$20.1 million (US$19.4 million).

The deal is being carried out through a private placement in which SouthGobi will acquire 105.73 million common shares of Aspire at a price of A$0.19 per share (US$0.18 per share).

SouthGobi will have the right to nominate one director to Aspire’s board and can maintain its proportionate shareholding in the company for a two-year period.

The deal requires approval from Australia’s Foreign Investment Review Board and the Australian Stock Exchange, but if those approvals are granted, the transaction is expected to close by Jan. 31, 2011.

Aspire Mining owns 100% of the Ovoot coking coal project in northern Mongolia, along with the Nurant and Shanagan coal projects. (The company also owns a 45% interest in the Windy Knob gold and base metals project in Western Australia.)

The Ovoot project, about 800 km northwest of SouthGobi’s coal operations, has a JORC-compliant measured and indicated resource of more than 275.7 million tonnes of coking coal. Measured resources tally 93.3 million tonnes, indicated resources 182.4 million tonnes, and inferred resources 55.0 million tonnes.

“It’s a business that has the potential to replicate the SouthGobi story and we appreciate the opportunity to participate in Aspire’s growth as a friendly strategic partner,” SouthGobi’s president and chief executive, Alexander Molyneux, explained in a statement.

The raw coal results to date from samples taken at Ovoot below the oxidized horizon indicate the potential for a large tonnage, high-ranking coking coal resource.

Highlights from early data results on the combined seams below the oxidation level included: Inherent Moisture (IM) of 0.6%; ash 17.8%; volatiles 28%; sulphur 1.1%; Crucible Swelling Index (CN) 7.8; and Energy Kcal/kg 6,761.

Data results were on an air dried average basis for raw coal samples and based on
nine holes and 124 samples.

Additional coal quality test work is continuing, including studies on washing yield and washed product quality.

Aspire picked up the Ovoot coal project in February. The project consists of six licenses covering 72.400 hectares and is in northern Mongolia’s Khuvsgul province close to China and Russia.

Coal mineralization in the Ovoot Basin is on the western edge of a large, lower Jurassic aged, sedimentary basin, which is believed to extend over an area of 820 sq km, Aspire outlines on its website.

When asked if SouthGobi is looking at other investments or acquisitions in Mongolia, Steven Feldman, the company’s manager of investor relations, said it was possible.

“We have a capital budget for looking at other projects so I think it’s fair to say we’re looking at other things if the opportunity arises.”

“We’re early movers within the country so I would say this project [Aspire] is a continuation of that,” Feldman added. “Aspire’s project is still very young and growing and it’s attractive.”

At presstime in Australia, Aspire was trading at A$0.25 per share and in Toronto SouthGobi was trading at $11.60 per share.