Modun Resources and SouthGobi Resources have canned Modun’s proposed acquisition of the Tsagaan Tolgoi Coal Project after realizing the transaction would not be completed by the end of the year. The termination means Modun no longer needs to raise additional capital to purchase the project.

SouthGobi Resources had extended the closing date of the sale to December 31, 2012, after the Mineral Resource Authority of Mongolia requested the suspension of some of SouthGobi’s mining and exploration licences following a proposed takeover bid by Aluminum Corporation of China Limited (Chalco). That bid was last week scrapped after Turquoise Hill Resources and Chalco agreed to terminate the lock-up agreement between them, including Chalco’s obligation to make a proportional takeover bid for up to 60%, but not less than 56% of the common shares of SouthGobi.

The 36.4 million tonne Tsagaan Tolgoi, or ‘White Hill’, deposit is in southern Mongolia, about 415km northeast of the flagship Ovoot Tolgoi mine. SouthGobi says the deposit has the potential to supply any future coal-fired power plant that may be developed to produce electricity for the Oyu Tolgoi copper-gold mining complex, which is about 115km to the northeast of Tsagaan Tolgoi.

Following termination of the lock-up agreement, Turquoise Hill will work with SouthGobi to improve performance of the company’s business and more fully recognize SouthGobi’s operating potential.

In other news, Modun will submit an application to register its Nuurst thermal coal project with the Mongolian Mineral Resources Authority, in the hope of receiving a mining licence for the site. The 489 million tonne JORC-compliant resource is in central Mongolia, about 120km south of Ulaanbaatar. The project takes in a 34.5sqkm area about 600km from the China border and 6km from existing rail infrastructure.

Modun has just completed a trenching program at the site to test for coal sub-cropping to the north of the already defined resource. The exploration has outlined an up-dip extension to the resource, which the company says demonstrates the potential for further shallow seam coal development in this region. Further drilling has been planned to fully identify the coal seam extension.

A three-hole drill program also recently carried out to verify previous assay work has confirmed the inherent moisture content of the coal at Nuurst is lower than previously reported. This inherent moisture category materially reduced from 28.57% to 9.95% and the full impact of this on the overall resource quality is now being determined. One hole has been tested and shows the calorific value of the coal increased to 5025 kcal/kg from 4115 kcal/kg.

Modun’s chairman Hugh Warner says the moisture content was incorrectly calculated from the 2011 drill program assays. “The Board appointed CSA Global to oversee and audit the correct procedures and recently sent a senior coal expert to Mongolia to ensure that the Mongolian laboratories have used the appropriate international standards during the 2012 drill program,” he said.

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