Valuation of Company Assets: South Gobi Energy Resources Ltd.
PLEKHANOV ACADEMY OF ECONOMICS
Valuation of company assets. South Gobi Energy Resources Ltd.
Written by:
Assessed by:
Ulaanbaatar, 2010
Contents
Investment Summary 3
Attractive Portfolio 3
Key Advantages 4
Key Risks 5
Valuation 6
DCF Valuation 6
Resources-based valuation 8
Background 9
Ownership 10
Corporate Governance 10
Mongolian Coal Assets 11
Ovoot Tolgoi Surface Mine 11
Ovoot Tolgoi Underground 12
Soumber 12
Tsagaan Tolgoi Coal Deposit 13
Tavan Tolgoi Extensions 13
Mamahak Coal Project (Indonesia) 13
Production and Sales 14
Strategic Priorities 14
Rail Infrastructure 15
Marketing 15
Exploration 15
Listing in Hong Kong 15
Summary 16
Investment Summary
Attractive Portfolio
SouthGobi Energy Resources (SGQ) offers exposure to high-quality coal resources in Mongolia, with company’s flagship mine Ovoot Tolgoi situated just 45km from Mongolia’s border with China. SGQ is in position to fully benefit from increase in Chinese coal import with expected coal production from Mongolian properties reaching 15mn in 2013 from 3mn in 2009 (CAGR 50%).
SGQ is developing three coal properties in Mongolia and one coal deposit in Indonesia. Specifically, we note the following:
• Ovoot Tolgoi deposit hosts over 190mt of coal resources, with coal quality higher than that of its Chinese peers. SGQ received 30-year mining licence for Ovoot Tolgoi in October 2007 for open-pit mining. Coal production is expected to reach 3mt in 2009 and ramp-up to 8mt in 2014.
• Ongoing exploration program at Soumber property, located 16km from Ovoot Tolgoi mine, may prove substantial coal resources. The apparent seam thickness ranges from from 2 to 51.5 meters along a strike distance of 18km. The quality of the coal is believed to be similar to that at Ovoot Tolgoi. We believe that the Soumber project will share the existing infrastructure of Ovoot Tolgoi mine and capital expenditures will be substantially reduced. Provided the drilling results are
Valuation of company assets. South Gobi Energy Resources Ltd.
Written by:
Assessed by:
Ulaanbaatar, 2010
Contents
Investment Summary 3
Attractive Portfolio 3
Key Advantages 4
Key Risks 5
Valuation 6
DCF Valuation 6
Resources-based valuation 8
Background 9
Ownership 10
Corporate Governance 10
Mongolian Coal Assets 11
Ovoot Tolgoi Surface Mine 11
Ovoot Tolgoi Underground 12
Soumber 12
Tsagaan Tolgoi Coal Deposit 13
Tavan Tolgoi Extensions 13
Mamahak Coal Project (Indonesia) 13
Production and Sales 14
Strategic Priorities 14
Rail Infrastructure 15
Marketing 15
Exploration 15
Listing in Hong Kong 15
Summary 16
Investment Summary
Attractive Portfolio
SouthGobi Energy Resources (SGQ) offers exposure to high-quality coal resources in Mongolia, with company’s flagship mine Ovoot Tolgoi situated just 45km from Mongolia’s border with China. SGQ is in position to fully benefit from increase in Chinese coal import with expected coal production from Mongolian properties reaching 15mn in 2013 from 3mn in 2009 (CAGR 50%).
SGQ is developing three coal properties in Mongolia and one coal deposit in Indonesia. Specifically, we note the following:
• Ovoot Tolgoi deposit hosts over 190mt of coal resources, with coal quality higher than that of its Chinese peers. SGQ received 30-year mining licence for Ovoot Tolgoi in October 2007 for open-pit mining. Coal production is expected to reach 3mt in 2009 and ramp-up to 8mt in 2014.
• Ongoing exploration program at Soumber property, located 16km from Ovoot Tolgoi mine, may prove substantial coal resources. The apparent seam thickness ranges from from 2 to 51.5 meters along a strike distance of 18km. The quality of the coal is believed to be similar to that at Ovoot Tolgoi. We believe that the Soumber project will share the existing infrastructure of Ovoot Tolgoi mine and capital expenditures will be substantially reduced. Provided the drilling results are