SouthGobi proves its coal business in southern Mongolia, ready to push production

Company grows to 450 employees from six and to $36 million from $3 million in one year

 

In four years, Vancouver-based SouthGobi Resources Ltd. has gone from being a company with six employees, a coal deposit and an unproven market to one with 450 employees pulling 1.3 million tonnes of coal out of an open pit in southern Mongolia in 2009 and selling it in China.

The company booked $36 million in revenue for 2009, up from just $3 million the previous year and none in the years prior.

That performance earned South-Gobi second spot on the list of Business BC's Top 100 fastest-growing companies.

"I think 2009, I would call a predevelopment year," South Gobi CEO Alex Molyneux said in a telephone interview from his Hong Kong office. "Although we were mining coal, [the mine was still in] the predevelopment."

Molyneux said that is because South Gobi has had to take a different path in its development in Mongolia than would be expected in North America.

The firm has proceeded on what Molyneux called a "very capital-lean" basis, spending only about $60 million to begin mining coal from its Ovoot Tolgoi project without spending heavily on infrastructure such as a handling plant or washing facility - things companies build before starting to mine in North America.

"In Mongolia, it's different because we were doing something nobody had ever done before," Molyneux said. "It was a totally unknown business in terms of whether it would actually work."

And 2009 had its challenges, Molyneux added, with Mongolia closing the border to shipments for part of the year, and only one customer for its product mix, which contains some coking coal suitable for steel production and coal that, without washing, is more suited to thermal uses.

"We happened to be moving coal and lifting it out of the ground, but it was not a real business."

However, SouthGobi, a subsidiary of Ivanhoe Mines Ltd., hit some considerable milestones in 2009, earning listings on the main board of the Toronto Stock Exchange and the Hong Kong Stock Exchange.

SouthGobi also took in a $500-million investment from the China Investment Corporation to support expansion of Ovoot Tolgoi's operations and building out the infrastructure it needs to obtain better value from all of its coal.

The Ovoot Tolgoi mine is one of three coal projects that SouthGobi owns in southern Mongolia, which produces coal from several surface seams, with its seam No. 5 boasting an average thickness of 53 metres, making it one of the deepest in the world.

The other projects on SouthGobi's property include an underground deposit in Ovoot Tolgoi and a second, Soumber deposit.

Molyneux added that SouthGobi has a distance advantage in being just 40 kilometres from the China border, which the company has now established as a more consistent shipping point for coal into its interior provinces that are ravenous for the resource.

And now that the company has proven its business, and that it can scale it up to higher levels of production (Molyneux estimated that its fourth-quarter 2010 extraction is running at a four-to-six-million tonne annualized rate), it has begun taking the steps needed to expand.

Molyneux said that in 2009, the firm built a permanent maintenance facility and a camp for the 430 of its employees (97-per-cent of whom are Mongolian) involved in mining operations, as well as putting in orders for bigger equipment and a larger fleet.

Now in 2010, Molyneux said the company has started construction on a coal-handling facility, which it expects to complete in early 2011.

The facility will allow SouthGobi to clean ash and waste rock from its coal and allow for blending to create higher-value products.

"It's not until 2012, 2015 that we will have a full-scale wash plant, full transportation infrastructure, loading and blending facilities," Molyneux said. "By then we will have about $500 million invested."

depenner@vancouversun. co
© Copyright (c) The Vancouver Sun

Comments

Popular posts from this blog