SouthGobi Sells Indonesian Coal Property

SouthGobi Energy Resources (SGQ-T) is selling its stake in the Mamahak coal project in Indonesia to focus on developing its coal assets in Mongolia, the company says. The news sent SouthGobi’s shares up $1.80 or 11.25% to close at $17.80 per share in mid-December.

SouthGobi suspended development work at Mamahak on Oct. 12 pending a detailed operational review. It then decided to divest its 85% interest in the coal project to Kangaroo Resources (KRL-A) for US$1 million in cash and 50 million shares of Kangaroo.

The arrangement gives South- Gobi 6.7% of Kangaroo’s outstanding shares and continued, though indirect, exposure to Indonesian coal.

In February, SouthGobi released a National Instrument 43-101 resource on Mamahak indicating that the southwest and east resource blocks on the concession contained measured and indicated resources of 12.2 million tonnes, plus another 5.2 million inferred tonnes. A bulk sample from the southwest resource block within the concession confirmed high-volatile metallurgical coking coal amenable to surface mining.

The Mamahak joint venture is comprised of four concessions totalling about 229.8 sq. km in the Haloq coal bearing formation. The coal found in this formation is generally of a quality ranging from sub-bituminous to bituminous with low moisture content and high fluidity values.

The southwest and east resource blocks cover roughly 6.4 sq. km, or about 3% of the total land area of the four concessions.

The Mamahak coal project is ideally located to supply the Japanese, Korean, Indian and Chinese coastal markets and earlier this year, SouthGobi signed a marketing agreement with Glencore International to set an initial 30,000-tonne trial shipment of high-fluidity metallurgical coking coal from East Kalimantan to Asian customers for testing. The coal was to be trucked on a 34-km haul road to a new barge-loading facility on the Mahakam River.

But after detailed analysis of the project, SouthGobi concluded it would be best developed and operated by a coal-mining company focused on Indonesia. Kangaroo has seven projects hosting large coking and thermal coal resources in the Southeast Asian nation’s East Kalimantan region. East Kalimantan is Indonesia’s second-largest province on the resource-rich island of Borneo.

The divestment means South- Gobi can concentrate on its flagship coal mine in Mongolia, Ovoot Tolgoi, which is already selling coal to customers in China. The Vancouver-based company is also busy exploring and developing other Permian-age metallurgical and thermal coal deposits in the country’s South Gobi region.

At presstime, Kangaroo was trading at A22¢ per share and had a market capitalization of about US$179 million.

Over the last 52 weeks, South- Gobi has traded in a range of $5-16 per share.

The company has 133.96 million shares outstanding.