Mongolian ruling thumps Khan, Western Prospector (August 27, 2007)

Vancouver — An abrupt ruling by the Mineral and Petroleum Resources Authority of Mongolia deeming certain exploration licences held by Khan Resources (KRI-T, KHRIF-O) and Western Prospector Group (WNP-V) invalid sent the stock of both companies tumbling in recent trading.

The Mineral Authority determined the special exploration licence for Khan’s Additional Dornod uranium property and the exploration licence covering part of Western Prospector’s Gurvanbulag uranium deposit invalid.

The Mongolian government’s justification for the decision is that some of the previous exploration work and reserve determination on the projects was financed by the state. Reportedly, 34 mineral licences issued to 18 entities are also in danger of being cancelled by Mongolia’s mineral department.

Khan says the ruling does not affect its existing mining licence for the Main Dornod property, in which it holds a 58% indirect interest.

Located in northeastern Mongolia, Dornod is a past-producing open-pit uranium mine that was operated by the Russians from 1988-1995. More than 700,000 tonnes of uranium-bearing ore grading 0.12% U3O8, mined from the Dornod 2 open-pit deposit, was loaded onto rail and hauled north to a Siberian milling facility.

A prefeasibility study recently completed on Dornod calculated an indicated resource of 25.3 million tonnes averaging 0.116% U3O8, for about 64.3 million contained pounds U3O8. Dornod also hosts an additional 2.2 million inferred tonnes of 0.05% U3O8.

Within the indicated resource, the study delineated a probable reserve of 18.2 million tonnes of 0.122% U3O8 in the No. 2 and No. 7 deposits for about 49.1 million contained pounds U3O8.

Khan has a 58% joint-venture interest in the No. 2 deposit, plus more than 50% of the No. 7 deposit.

Using a uranium price of US$55 per lb. U3O8, the Dornod study modelled a 3,500-tonne-per-day operation over a 15.5-year mine life, with annual production averaging 2.9 million lbs. U3O8. Costs are estimated at US$19.99 per lb. U3O8 or US$49.21 per tonne of ore.

A 37.1% internal rate of return is projected along with a US$288-million net present value, using a 10% discount rate. The capital cost of developing Dornod is estimated at about US$283 million.

Khan hopes to start a full feasibility study for the project in the fall.

Fellow prospective uranium developer Western Prospector holds the Saddle Hills uranium project, adjacent to Khan’s ground. Saddle Hills contains a number of historic uranium deposits delineated by past Russian exploration (from 1975-1989) including extensive underground development.

The Gurvanbulag deposit contains an indicated resource of 2.83 million tonnes grading 0.22% U3O8 for about 13.6 million contained pounds U3O8 plus an additional 2.67 million inferred tonnes at 0.15% U3O8 (about 8.6 million contained lbs. U3O8). The resource study used a 0.07% U3O8 cutoff grade.

Uranium mineralization in the region is hosted in a large volcanic-sedimentary basin.

Khan shares closed down $1.33, or 48%, at $1.46 apiece on strong volume following the licence news. Western Prospector was off 18%, down 61, at $2.79 per share prior to its trading halt.