SouthGobi cuts coal resource at Ovoot Tolgoi after mistake discovered

Vancouver – Mathematical errors have led to a major overstatement of a resource estimate at SouthGobi Energy Resources‘ (SGQ-V, SGQRF-O) Ovoot Tolgoi coal mine in southern Mongolia.

At the end of July SouthGobi had announced significant increases to its surface-coal resource estimate in Ovoot Tolgoi’s West Field zone where it is now actively mining.

News of the super-sizing tonnages helped push SouthGobi’s share price up $1.90 to $19.

But now SouthGobi says the consulting company that calculated the resource estimate, The Americas Group (TAG), made modeling and arithmetic errors.

Corrected figures show a vast reduction in coal tonnages for the West Field.

SouthGobi had pegged measured, indicated and inferred resource estimate at 79.6, 113.6 and 138.8 million tonnes respectively.

The new numbers in the same order of categories are: 75, 27.7 and 18.8 million tonnes.

The incorrect resource estimate overstated the combined measured and indicated categories by a hefty 88% and the inferred by a stunning 638%.

Fortunately the error does not affect SouthGobi’s mining plan as it based that on an earlier resource estimate.

SouthGobi says TAG will update the technical report using revised data from midsummer.

SouthGobi also says it will produce a new technical report by the end of 2009 that will incorporate data from this fall’s drilling campaign.

No word as of yet, however, which consultancy SouthGobi will use for the task.

News of the error did not weigh down SouthGobi’s share price. It closed up 70¢ at $9.94. The company has 133.3 million shares outstanding.