UGL takes aim at Mongolian targets

Vancouver — Vancouver-based UGL Enterprises () is preparing to drill two of the six large properties in Mongolia that it acquired over the past year. The acquistions were made under an arrangement with Mine Info, a Mongolian exploration company.

UGL, formerly known as Universal Gun-Loc Industries and, prior to that, Enerwaste Minerals, was attracted to Mongolia because of its mineral laws. Introduced in 1997, the laws allow full foreign ownership of mineral licences and operations. Before 1997, exploration in the region had centered on Soviet-Mongolian government programs, which left much of the country underexplored in spite of some highly prospective geology.

“Although the country saw a lot of exploration by the Russians, who were looking for uranium and copper, there was, at the time, no focus on gold, and thus most parts remain relatively unexplored in terms of gold,” says Paul MacKenzie of UGL’s Investor Relations department.

The current exploration boom is increasingly fueled by Ivanhoe Mines‘ (ivn-t) ever-expanding Turquoise Hill (or Oyu Tolgoi, as it is known locally) copper-gold project. By late last year, independent consultants had calculated an inferred resource of 14 million tonnes (30.8 billion lbs.) copper and 8.8 million oz. gold. In addition, the indicated resource in the Southwest Oyu deposit contains 3.1 billion lbs. copper and 7.3 million oz. gold at a cutoff grade of 0.6% copper-equivalent. Drilling continues as the project approaches the feasibility stage.

In January, UGL acquired the shares of Canrim Minerals for about $100,000. Canrim is a British Virgin Islands holding company which owns the Gold Ram property in Omnogovi province and the right to acquire an 80% interest in the Huren Tolgoi property in Bayanhonger province.

In early March, UGL acquired two more properties in Mongolia. The company signed an option agreement to acquire up to 100% of a copper-gold exploration property known as Bor Ovoo. UGL also negotiated the 100% outright purchase of another gold-copper property known as Naranbulag.

UGL is set to start drilling on its Huren Tolgoi property, in which it can earn a 100% interest. This will be followed by drilling on the South Valley project in the northeastern part of the country.

Initiating a drill program in Mongolia is no small feat these days. UGL had to pay a cash advance to secure the services of Canasia Drilling for the 2004 season. Drill rigs are in short supply, partly because companies such as Ivanhoe and QGX (qgx-v) are exploring their own Mongolian properties, but also because of all the activity in neighbouring China. Year-round drilling is possible in Mongolia, though the colder weather makes it costly.

The Huren Tolgoi property comprises 26.3 sq. km in Bayanhongor Aimag province and is surrounded by Ivanhoe’s Saran Uul porphyry copper discovery. The copper-gold porphyry deposit shows intense silicification and associated strong clay alteration. Exploration in 2003 included a soil geochemical survey, which identified a large alteration zone measuring 450 by 200 metres. An area measuring 900 by 450 metres averages 0.4 gram gold per tonne, 0.7% copper and 90 grams molybdenum per tonne, based on chip sampling. The zone hosts a significant widespread gold-in-soil anomaly grading as much as 2.59 grams per tonne. Drilling will focus on this alteration zone.

At Ivanhoe’s Saran Uul discovery nearby, stockwork quartz veins are variably developed in dioritic intrusives, and copper and iron-oxides are common throughout. Several zones with abundant copper and iron oxides were identified in some trenches, and drilling returned anomalous gold and copper assays. Twenty-five trenches totalling more than 17,400 metres were completed last year, as were 13 diamond drill holes totalling 3,800 metres.

At the company’s South Valley project, in northeastern Mongolia, near the Russian border, UGL can earn a 60% interest, with rights of first refusal on the remaining 40%. The Borondon property is near the town of Choilbasn in Dornod Aimag. Over the past seven years, modern exploration focused on porphyry copper-gold and polymetallic gold and silver vein targets.

Uvur Hooloi

The principal area of interest on the Borondon property is a large porphyry target known as Uvur Hooloi. It contains four anomalous zones in an area measuring 1.75 by 1.5 km.

In July 2003, 129 samples were taken over the porphyry target area. Four mineralized zones have been outlined:

— Zone 1 measures 400 by 200 metres, with widespread gold and copper values from weathered rock and geochemical soil samples of up to 2.17 grams gold per tonne and 2.1% copper.

— Zone 2 measures 400 by 200 metres and grades up to 2.1 grams gold and up to 1.9% copper.

— Zone 3 measures 350 by 150 metres and has up to 1.94 grams gold and up to 2.9% copper.

— Zone 4 measures 450 by 200 metres and grades as high as 0.94 gram gold and up to 0.8% copper.

At the Uvur Hooloi porphyry targets, an induced-polarization survey will be carried out in order to advance the property to the drill stage. That program should begin following initial drilling of UGL’s Huren Tolgoi property.

UGL’s wholly owned Gold Ram property comprises 154.8 sq. km in an area 75 km southwest of the provincial capital, Dalanzadgad. The property is bordered by QGX’s property to the east and is surrounded by Asia Gold’s extensive South Gobi property. Previous Russian-Mongolian surveys indicated significant gold mineralization in a system of mesothermal quartz veins within Nomhon Formation sediments.

In the same province as Huren Tolgoi is the company’s wholly owned Khondloy property, which comprises some 98 sq. km. UGL paid cash for a 100% interest in the property last September and has since done a preliminary evaluation.

The main mineral prospect on the property is the Khondloy occurrence, where the Chinese dug for copper oxides in numerous shallow pits and trenches. Russian explorers in the 1980s sampled and the drilled 11 shallow holes, and the results indicated widespread anomalous copper associated with semi-massive-to-massive-sulphide mineralization. Hole 11 returned more than 30 metres grading 0.28% copper, 0.33% zinc and 7.2 grams silver at a down-hole depth of 69 metres. The drill core was not analyzed for gold, though results from a joint Mongolian-Russian program included several surface gold occurrences.

Two styles of mineralization were recently found in the area of the Khondloy occurrence. The old workings had targeted a fault contact zone between limestone and altered schist- sandstone. Mineralization includes hematite, magnetite, limonite, pyrite and varied copper oxides, traced for a distance exceeding 3 km. Recent sampling returned up to 0.74 gram gold, 14% copper, 5.28% zinc and 21 grams silver. Of 35 chip grab samples, 11 returned greater than 0.8% copper, 12 returned greater than 0.1 gram gold, and nine returned more than 1% zinc.

South of the contact zone, exploration crews found copper-oxide mineralization in quartz and quartz- sulphide veinlets hosted in an altered diorite. Nine rock-chip grab samples returned up to 0.8% copper and up to 0.19 gram gold.

UGL recently entered into an agreement to earn up to a 100% interest in the Boro Ovoo property through cash payments to the licence-holder, Orgilmunkh Trade Co. The Boro Ovoo property comprises 57.5 sq. km in the province of Dundgovi Amig, 400 km southwest of Ulaanbaatar. The Boro Ovoo property also includes two licences totalling an additional 544 sq. km. The property is 10 km west-northwest of Asia Gold’s (formerly Ivanhoe’s) Ovut Ovoo deposit.

UGL can earn an 80% interest through staged payments totalling $325,000, up to November 2006. Thereafter, the remaining 20% interest can be bought for US$1 million, subject to a 2% net smelter return royalty by the licence-holder.

The company says the presence of numerous copper and gold occurrences in hematite and jasperoid-altered shear zones could indicate a buried porphyry copper-gold system. Recent sampling from the Boro Ovoo property has returned high gold grades of 294 grams and 20.2 grams in grab samples.

Mineral occurrences include the Zuun khar chikh uu copper prospect, which comprises an area with 25 sample locations returning 1-3% copper. Soil sampling expanded the anomaly over an area measuring 1,400 by 250-650 metres, with copper grades of up to 1% and a rock sample returned 1.99% copper.

Other occurrences include the Tsogtchanandman prospect, which covers low-temperature quartz veins with hematitic alteration, and the Khukh Ovoo prospect, wich covers ancient mining workings of gold-copper mineralization related to faults and shear zones. A small bulk sample of rock debris taken from an ancient pit by one of UGL’s geologists returned 1.51% copper.

UGL recently acquired the Naranbulag property from a private Mongolian company. The property comprises 14.3 sq. km in Zavkhan Amig, 700 km west of Ullaan Baatar. UGL agreed to pay US$26,000 in cash and $152,000 worth of shares (200,000 at 76 per share).

The property covers numerous ancient workings and quarries for copper mineralization hosted in granites and silicified volcanics. In the late 1970s, the Naranbulag property was subjected to 3,200 metres of diamond drilling in 33 holes, as well as trenching, by the Russians. Core recovery from the Russian program was poor, and the core was not assayed for gold. Nine mineralized deposits were indicated, with grades of 0.2-0.5% copper. The width of mineralization ranges from 6 to 35 metres.

UGL is compiling the Russian data prior to beginning a work program.

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