SouthGobi shares rise on sale of Indonesian coal stake

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 $17.80 per share.

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 SouthGobi 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 and an additional inferred resource of 5.2 million tonnes. A bulk sample from the SW resource block within the concession confirmed high volatile metallurgical coking coal amenable to surface mining.

The Mamahak joint venture is comprised of four concessions totaling about 22,976 hectares in the Haloq coal bearing formation. The coal found in this formation is generally of a quality rank ranging from sub-bituminous to bituminous with low moisture content and high fluidity values. The SW and E resource blocks cover approximately 638 hectares, 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 that 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 SouthGobi can concentrate on its flagship coal mine in Mongolia, Ovoot Tolgoi, from which coal is already being shipped and sold to 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 SouthGobi has traded in a range of $5-$16 per share and has 133.96 million shares outstanding.