SouthGobi sells metal properties to Ivanhoe

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

The $30 million SouthGobi’s major shareholder is extending to it will be the third credit facility Ivanhoe has given it 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 7.5 basis points plus LIBOR.

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, SouthGobi’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, 2008, SouthGobi held 28 exploration licenses covering about 350,000 ha. in Mongolia and 12 others spread over 83,000 ha. in Indonesia. At that time SouthGobi had ongoing applications on four more properties in Indonesia encompassing another 230,000 ha.

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 the Khongor project, part of which SouthGobi optioned from Gallant Minerals and the rest of which it owns, drilling returned as much as 50 metres grading 1% copper and 0.3 gram gold per tonne between a depth of 64 and 114 metres 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 in exploration by Aug. 15, 2009.

At the Naran Bulag project, one of SouthGobi’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 where SouthGobi has concentrated most of its metal division’s efforts.

In June of this year drilling at the Kerta project cut as much as 6 metres grading 9.6 grams gold and 23 grams silver per tonne between a depth of 119 and 125 metres.

And in July SouthGobi initiated a drill campaign 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 SouthGobi has produced over 1 million tonnes of the black stuff. As of Oct. 31, 2008 the company says cash costs per tonne coal came in 32% under budget at US$8.20.

On news of the transaction SouthGobi shares had gained 30¢ at presstime and were trading at $6.90. It has about 133 million shares outstanding.