AGH University science and technology Faculty of Mining and geoengineering, Department of open pit mining

Internship report
Sharyn gol open pit thermal coal mine 18/07/2011 to 09/09/2011

Jargalan Chuluunkhuu 9/16/2011

Table of Contents
1. 2. 3. 4. Reference (in Mongolia )............................................................................................ 3 Translation of reference ............................................................................................ 4 Coal mining in Mongolia ............................................................................................ 5 Company overview .................................................................................................... 5 Coal Quality ................................................................................................................... 6 Production..................................................................................................................... 6 Sharyn Gols Customers ................................................................................................. 8 5. 6. Mining processes of Sharyn gol mine ........................................................................ 8 Machines and equipments ......................................................................................... 9 Technical aging of Sharyn Gol mine: ............................................................................ 10 Technical specifications of Electrical draglines ............................................................. 11 Technical specifications of drilling rig ........................................................................... 11 Equipment's time effectiveness ................................................................................... 12 7. Major coal mines in Mongolia .................................................................................. 14 Erdenes Tavan Tolgoi ................................................................................................... 14 Mongolian Mining Corporation .................................................................................... 14 MAK ............................................................................................................................ 14 Prophecy Resource Corp.............................................................................................. 16 Xanadu Mines.............................................................................................................. 16 Hunnu Coal.................................................................................................................. 17 Shivee Ovoo JSC .......................................................................................................... 17 Baganuur JSC ............................................................................................................... 17 Mogoin Gol JSC............................................................................................................ 18 Aduunchuluun JSC ....................................................................................................... 18

1. Reference (in Mongolia )

2. Translation of reference

3. Coal mining in Mongolia

In Mongolia there are dozens of coal mines in the exploration, development and production stages with a combined estimated coal resource of over 150bn tonnes with varying quality from low-grade coal- lignite to high-quality bituminous coking coal. The country possesses over 100 coal deposits and about 300 occurrences. Most of them are proven but have not been developed due to a lack of infrastructure and capital to date. In addition to its large resources, Mongolia has very good mining conditions usually suited for surface mining. Due to typically low strip ratios, extraction costs are usually low, giving mining operations a major competitive advantage compared to peer operations in Russia, China and the rest of the world. Mongolias proximity to China and Russia is another factor making its coal industry attractive. Given its undeveloped world class resources, cost advantages and relatively easy access to large consumers like China and Russia, Mongolia is a candidate for being one of worlds largest coal exporters to driving forces of the global economy.

Coal Production (mln tons)

60 50 40 30 20 10 0 2005 2006 2007 2008 2009 2010 2011

4. Company overview
Sharyn Gol is a Mongolian thermal coal producer with 374 million tonnes of JORC compliant resources, listed on the Mongolian Stock Exchange. In 1995 the company was partially privatized and in 2005 it became a 100% private company. The mine is one of the oldest coal mines in Mongolia, dating back 46 years to first production in 1965. During peak production, coal extraction reached 2.5mn tonnes annually. However, in recent years, due to deterioration of equipment and an increased strip ratio, its production dropped to around 0.5mn tonnes per year and 80% of its coal supplied to Darkhan and Erdenet Thermal Power Plants (TPP). The Sharyn Gol mine also has a competitive advantage in that it is connected to the Trans-Mongolian railway by a dedicated railspur. This railspur enables the Company to deliver coal to its customers directly via rail, without having any infrastructure related difficulties, common to other mining operations in Mongolia.

Sharyn Gol Mine

The Sharyn Gol coal deposit is located 50km south of Darkhan city and 240km north of the capital city Ulaanbaatar. It was discovered in the 1930s and initially explored by a joint venture of Mongolia and Russia efforts in the 1940s and 50s. The Sharyn Gol coal mining license area covers 16,060 hectares. Coal seam length 1000m, width 1900 m, thickness from 15 to 30 m, angle of dip 8 12 , overburden thickness 140~200 m. Coal Quality Total moisture,% Ash (dry basis),% Volatile Matter(dry basis), % Sulfur(dry basis),% Calorific value, Kcal/Kg Size Ash Melting Point Production The company is planning to increase production volume to 1mn tonne per annum in the near term and increase to 2.5mn tonnes per year in the medium term. Sharyn gol is assuming that most of the new coal production will come from the new coal seam discovered as a result of 17,000 meters drilling in 2010. The following is our Sharyn Gol production assumption by coal seams: Production breakdown, mn tonnes
From old coal seam From new coal seam 2011 2012 2013 2014 2015

14,4 19 33-35 0,46 4000-7300 0-300mm 1240C-1280C

0.55
0.55

0.55 0.50
1.05

0.55 0.70
1.25

0.55 0.90
1.45

0.55 1.00
1.55

Total

Coal production 2005-2010:

Sharyn Gol Production (mln tons)

Mongolia Sharyn Gol 16.4 13.16 8.81 9.69

8.26

7.89

0.71 2005

0.51 2006

0.54 2007

0.55 2008

0.42 2009

0.45 2010

Coal production vs Overburden removing (by thousand m3)

100000 90000 80000 70000 60000 50000 40000 30000 20000 10000 0 1965-1980 1981-1990 Coal production 1991-2000 Overburden removing 2001-2009

Sharyn Gols production cost is approximately US$15 per tonne. The following figure shows

breakdown of cash cost: Direct Operating Costs, US$/t

Overburden removing Coal Mining Processing (CHP) Wash Plant Site Infrastructure Transport cost Total Direct Cash Operating Costs Total Direct Cash Operating Costs (real)

2011

2012

2013

2014

2015

10.2 1.7 0.3 0.5 1.2 14.9 14.9

8.6 1.9 0.3 0.8 0.5 24.1 37.3 35.6

8.7 2.0 0.4 1.0 0.6 29.8 43.5 39.5

8.8 2.1 0.4 1.2 0.6 34.8 49.0 42.3

9.1 2.2 0.4 1.3 0.6 38.1 52.8 43.5

Sharyn Gols Customers

Sharyn Gol heating Erel Cement 2% Erdenet Copper 4% Mine 11% Others 4%

Darkhan Power Plant 36%

Erdenet Power Plant 43%

5. Mining processes of Sharyn gol mine

Dewatering

Drilling

Blasting

Overburde n removing

Coal exploitation

Transporting coal

by Receiving dra glin Loadin onto e rail wagons

Receiving bunker capacity 180tn

Crushing

Classifying

Simpleprocess. Coal is crushed to 300 mm or less, then classified into lump and fines hoppers, where upon it is loaded onto waiting rail wagons. No washing or other beneficiation processes are presently undertaken.

Jaw Crusher SMD-60A and Screen GISL-72 productivity 360tn/hour

In 2008 put into production 700m of Conveyor system for coal transportation.

6. Machines and equipments

Machines and Equipments Model Task Quantity

Excavators

Drilling rigs

Dumptracks Bulldozers Grader Locomotive

Electric dragline 1-10/70 Electric dragline -6/45 Electric face shovel 2-8 Electric face shovel -4 Electric face shovel -5 Hydraulic excavator Hyundai LC-290 Hydraulic excavator Hyundai LC-450 -160 33-200 5-200 CAT-769D TEREX-3307 -548 Komatsu D155A CAT-16G -2

Overburden removing Overburden removing Overburden removing Mining coal and Overburden removing Overburden removing Engineering work Engineering work Coal drilling Overburden drilling Overburden drilling Transporting mass Transporting mass Transporting mass Road and dump Road Shunting

2 1 1 3 2 1 1 2 2 1 5 3 2 2 1 2

1 2

Walking excavator ( ) Dredge career caterpillar ( ) 3 Roller cone drill machine ( )

Technical aging of Sharyn Gol mine:

Excavator aging by year

32 26 21 16 22 21 21 22 30

Drilling rig aging by year

17 14

4 2

Drill 160 29 Drill 3-200 31 Drill 3-200 32 Drill 5-200 36

Truck aging by year

13 13 10 10

Cat 18

Cat 20

Cat 34

Cat 35

Terex 24

Terex 25

Technical specifications of Electrical draglines Electric dragline -6/45 Electric dragline -10/70

Bucket capacity, m3 Boom length,m Average pressure on soil, kPa When operating During walking Travel speed, m/s Theoretical productivity, m3/h Maximum range of digging and unloading, m Maximum unloading height, m Maximum digging depth, m Operating mass, t

6 45 58.5 107.8 0.133 557 43.5 22 19.5 278

10 70 95.7 153.9 0.055 686 66.5 27.5 35 688

Technical specifications of drilling rig Drilling rig 3-200 Drilling rig -160

Rock strength , f:

6-14

3-6

Operating weight, t Diameter of hole, mm Drilling depth, m: Number of rods, pcs Rod length, m Angle of blast hole incline, deg Feed force, kN Travel speed, k m/h Total power, kW Dimensions (working position), mm Dimensions ( transport position), mm

62 200 60 0; 7,5; 15; 22,5; 30 300 0.75 386 12100 5400x17320 17500 5400x5300

29 160 24 3 8 0; 15; 30 0-80 0.9 184 7495490012993 1264048004698

Drilling rig 3-200 crawler mounted drilling machines are designed for roller bit drilling of vertical and inclined blast holes . Preferably the drill is used for drilling rocks with hardness of 6-14 units according to Prof. Protodyakonov scale. Equipment's time effectiveness

in accordance with operation 15% out of spare parts 0%

Excavators

technical damage 28%

productive 38%

estimated waiting 19%

out of spare parts 5%

Trucks

in accordance with operation 2%

technical damage 38%

productive 46%

estimated waiting 9%

Electric face shovel -5

Electric face shovel -4

Electric face shovel -8

Dipper capacity, m3 5.2 4 8 Maximum digging radius, m 14.5 23.70 18.4 Maximum digging height, m 10.3 22.16 13.5 Maximum dumping radius, m 12.65 22.14 16.3 Maximum dumping height, m 6.7 17.52 6.1 Linefed motor power kW 250 520 520 Travel speed, km/hour 0.55 0.42-0.45 0.42 Voltage, V 6000 6000/3000 6000 Operating mass, t 196 369 325 EKG mining shovels are designed for excavating and loading of minerals and overburden into conveyance means during open-pit operations as well as for stacking and loading operations at storage facilities and for continuous flow process technology operations. The mining shovel is intended for operation in temperate climate. Working temperature range from -40 to +45.

7. Major coal mines in Mongolia

Erdenes Tavan Tolgoi Erdenes Tavan Tolgoi LLC incorporated as an associated company of the Erdenes MGL LLC. The company's functions are to carry out exploration and exploitation on the strategically important Tavan Tolgoi coal mine by holding special licenses, to centralize benefits of the Tavan Tolgoi mine and transfer them to the state budget, and to collect investments for building extraction and processing factories based on the deposit and for developing infrastructure. The Tavan Tolgoi deposit is the biggest undeveloped coking coal deposit in the world with 6.4bn tonnes of coking and thermal coal. It has good quality thermal coal with 4,900kcal/kg and coking coal with 6,500-7,500kcal/kg. The coal has low sulfur content of less than 0.8% for all seams, low ash content of 10 to 33.3%, moisture 8.5% and content of volatile matter 22.0-34.1%. Combination of high quality, low cost, proximity to key end market in China, Russia, Japan and Korea and experienced management team with strong international partners is giving the mine the best-in-class coal opportunity from Mongolia in our view. Mongolian Mining Corporation MMC owns a 2,960ha mining license on Ukhaa Khudag deposit in 6.4b tonnes Tavan Tolgoi Coking Coal complex in the South Gobi of Mongolia. MMC commenced mining at the Ukhaa Khudag in April 2009. The deposit holds 286m tonnes of JORC-compliant proven and probable reserves and 499.9m tonnes of measured and indicated resources, where the majority of reserves and resources are hard coking coal. In September 2010, the Company completed its IPO on the Hong Kong Stock Exchange selling a 20% offering of new shares and raised $650m. MMC produced about 4mt in 2010 and plans to increase to 15mt by 2013. MMC is finalizing the construction of a paved road to transport its coal to China and the initial 5mtpa coal washing plant of a planned 15mtpa (3x5mtpa) and a 18MW power plant. MMC has a license to build rail road and plans to build a 240km rail road from the deposit to the Chinese border in 2011-2012. MCS Holding, Petrovis, Kerry, Casafina/Ancora, Shunklai, and EBRD own 44.0%, 11.4%, 8.1%, 6.2%, 4.9% and 3.1%, respectively, and the free float is 22.3%. MAK MAK, one of the largest business groups in Mongolia, has three coal mining operations Eldev, Naryn Sukhait and Qinhua--Naryn Sukhait JV and, also, holds mining licenses in the Aduunchuluun deposit. The Eldev coal deposit is located 330km south of Ulaanbaatar and 21km from the Trans-Mongolian railway. MAK produces 500ktpa from the Eldev deposit which has 30m tonnes of reserve and supplies to domestic buyers Erdenet Mining Corp, Khutul Cement-Limestone Plant, etc. The Naryn Sukhait deposit is located 50km north of the Chinese border in the South Gobi and its geological reserve is 220m tonnes of coking coal with 6,500-7,800kcal/kg. MAK commenced the operation at the deposit in Dec 2007 and begun exports in May 2008. Installed capacity is 3mtpa and plans to increase it to 5-8mtpa after the completion of the railway to connect with the border crossing that is being built by MAK. In 2002, MAK launched a JV with Qinhua Corp of China in the Naryn Sukhait deposit,

and started coal exports in April 2003. The JV has been exporting 1.5mtpa from the deposit. In 2010, MAK exploited a historical record 5.1m tonnes.

SouthGobi Resources
SouthGobi owns three coal projects in Mongolia - Ovoot Tolgoi Mine (producing) and two development projects, the Soumber Deposit and the Ovoot Tolgoi Underground Deposit. The Ovoot Tolgoi deposit is next to MAKs Naryn Sukhait deposit and 40km from the Chinese border. The Ovoot Tolgois open cut mine proven and probable reserves are 114m tonnes and open cut and underground total measured and indicated resources are 260m tonnes of high-volatile B to A bituminous with over 7,212kcal/kg. SouthGobi commenced production in April 2008 and exporting it to China. In the first 9 months of 2010, it produced 1.4m tonnes, below the targeted 4m tonnes in 2010, and sold at an average $39 per tonne. SouthGobi is planning to build a 45km paved road to the border expected to cost $48m by 2012, and to build a dry ash separation plant which will cost $45m by the end-2011. In Oct 2010, the Company agreed to buy 19.9% of Aspire Mining for A$20.1m. Ivanhoe Mines and China Investment Corp own 57.0% and 13.3%, respectively and the free float is 29.7%.

Tavan Tolgoi JSC

Tavan Tolgoi JSC has two coal mining licenses within basin of 6.4b tonnes Tavan Tolgoi Coking Coal deposit in South Gobi of Mongolia, covering 169 hectares with a total resource of 40mn tonnes of coking coal with a calorific value of 6,500-7,500kcal/kg, 20% ash and 8.5% moisture. The South Gobi provincial government owns 51% of the Company and the rest is privately held by retail investors on the MSE. From 2004, the Company started selling coal to China. The company sells its coal to dealer companies which further sell to China. In 2010, it exploited 5mn tonnes, most of it went to China. Although in Gansu and Inner Mongolia coking coal prices are around $100/t, the company is still selling the coal at $6.5/t to the local market due to the state-regulated sale prices and is exporting at around $25-35/t.

Mongolia Energy Corporation

MEC acquired several projects or licenses for coal, ferrous and non-ferrous metal resources in Western Mongolia since 2007. MECs main asset is Khushuut Coal Mine, which is located in Khovd Aimag (Province) of Mongolia. MEC conducted a drilling programme at the deposit in 2007 and discovered JORC compliant resources of 149m tonnes of coking coal. MEC has been constructing a paved road to the Chinese border which was planned to cost RMB866m and expected to be complete by the end of 2010. In January 2010, MEC entered a long term coal supply agreement with Baosteel Bayi in China for supplying at least 9.6m tonnes of coking coal through years 2010 to 2020. In June 2010, MEC contracted Leighton Asia for a A$273m 6-year contract to develop and operate the Khushuut mine. Initially, 3mtpa will be produced from the mine and production will increase further to 5-6mtpa. The mining commenced in July 2010 and the initial production was expected by the end-2010. 70% of the company is held by the public and 18% by Lo Lin Shing, Simon, 12.0% by Liu Cheng Lin, and 0.11% by other directors.

Aspire Mining
Aspire Mining has three coal projects in Northern Mongolia Ovoot Coking Coal project, Nuramt Coal project and Jilchilibag Coal project. In the Ovoot project, the Company has six

exploration licenses covering a total area of 509 square km and announced JORC compliant measured and indicated resources of 276m tonnes of coking coal in October 2010. Only 10% of the deposit area is explored and the Company expects the resource base to be increased after 2011 drilling. The most feasible coal transportation option is to build a 552km railroad from the deposit to Erdenet City of Mongolia, and the Company targets production by 2012. The other two projects are also being explored. The Companys directors own 38% of the Company, SouthGobi Resources 19.9%, Mongolian Vendors 14.1% and 27.6% is held by other shareholders, in the fully diluted basis. Prophecy Resource Corp Prophecy has two thermal coal projects in Mongolia Ulaan-Ovoo and Chandgana totaling 1.4b tonnes measured and indicated resources. The Ulaan-Ovoo, located in northern Mongolia 10 km from the Russian border and 120 km from both Mongolian and Russian rail links, has 209m tonnes measured and indicated coal resources (proven and probable reserves are 20m tonnes) (NI 43-101) with a 5,204 kcal/kg calorific value. As a mining permission was granted for Ulaan-Ovoo in Nov 2010, the Company started supplying coal to Erdenet and Darkhan cities power plants through a contract mining with Leighton Engineering. The Company targets to produce 0.8m tonnes in 2011 and to reach 2m in 2013. It is actively negotiating off take agreements with Russian power plants as well as prospective Asian customers at the Russian east seaports. The Chandgana deposit with 1,211m tonnes of measured & indicated resources with the calorific value of 4,354kcal/kg is located 290km east of Ulaanbaatar and 160km from the existing railway. The Company researches to build a 600MW mine mouth power plant with extension to eventual 4,200MW. Institutional and insiders investors hold 35% of the Company. Xanadu Mines Xanadus major coal projects in Mongolia are Khar Tarvaga and Galshar. The Khar Tarvaga deposit with a JORC compliant resources of 327m tonnes (172m tonnes are Indicated and 155m tonnes are Inferred) is located 200km south east of Ulaanbaatar and 30km from the Trans-Mongolian railway. Xanadu works to covert the exploration license on the deposit to a mining license and discussing with several groups interested in exploiting the potential of the Khar Tarvaga. One possible option is to implement a coal to liquid project. The Galshar project with non-JORC compliant resources of 203.6m tonnes (measured 158.1m and indicated 72.5m) and targeted JORC compliant resources of 175-225m tonnes is located 285km south east of Ulaanbaatar and 65km from the Trans-Mongolian railway. In January 2011, Xanadu commenced the scoping study on the deposit. The exploration will continue at the deposit this year. From the drilling data of 2005-2010, the coal quality of these two deposits ranges 4,201-6,424kcal/kg. The Company has other coal, gold and copper exploration licenses in Mongolia. Xanadu completed its IPO on the ASX in December 2010. The largest shareholders of the Company are Straits Energy Trading Pte, Eagle Securities, Bikibi Atoll Investments and Farrington Corporate Securities respectively owning 16.7%, 11.0%, 8.9% and 5.0% of the Company.

Hunnu Coal Hunnu Coal establish as a premium coal company focused on exploration and development of its interest in coking and thermal coal deposits in Mongolia. Hunnu Coal has positioned itself, through a number of joint venture agreements in the premier coking coal basins of southern and eastern Mongolia, with a focus on infrastructure and access to the Chinese export coal markets. their all venture agreement projects has JORC resource of over 400.0mn. At the current stage, their major projects are Unst Khudag (Hunnu coal owns 80% of the project) and Tsant Uul (90-80% in hand of Hunnu). Unst Khudag has JORC resource of 324.25mn tonnes of thermal coal with an average calorific value of 6,784 kcal/kg dry ash free (daf). Tsant Uul has 90.0nm tonnes of coking coal with an average calorific value of 7,008 to 7,455 kcal/kg, 17.54% to 39.01% ash. Shivee Ovoo JSC Shivee Ovoo supplies 25% of Mongolian domestic coal demand. 80% of Shivee Ovoo coal production is supplied to TPP-4, the biggest thermal power plant in Mongolia. The Mongolian Government owns 90% of the Company and 9.0% is held by Firebird Fund. Designed production capacity of the company is 2mtpa, however, the company produces 1.4mtpa. In 2010, the Parliament of Mongolia established a cooperation contract with the Chinese government to build a 4800MW thermal power plant relying on the Shivee Ovoo coal deposit. The deposit, a strategically important deposit, covers 4,293ha and is located 260km southeast of Ulaanbaatar and connected with the Trans-Mongolian rail line. Total explored reserve is 600mt of brown coal and expected resource is 2.1bn. Out of the explored reserve, 564mt is economic reserve. Coal contents are 2,963-4,407kcal/kg calorific value, 40% ash content, 8.5% of moisture, 0.5% sulphur and 43% volatile material. Because of regulated low coal price, MNT13,958 ($11.11) per tonne in 2010, Shivee Ovoo has been operating with operational losses. Baganuur JSC Baganuur supplies over 50% of the coal consumption of the Mongolian Central Energy System. The Baganuur coal deposit, a strategic deposit, is located 139km east of Ulaanbaatar and connected with the city through a railway. The initial estimated economic reserve was 304m tonnes and resource was 296m tonnes with a calorific value of 3,200-3,500kcal/kg, 12.9% ash and 32.9% moisture. Since its inception in 1978, the Company extracted over 80m tonnes from the deposit. Currently the mine extracts 3mtpa due to central-region demand, old equipment and financial constraints. However, because of state regulated coal price, MNT18,190 ($14.5) per tonne in 2010, Baganuur has been operating with operational losses. The deposits strip ratio is reaching 6:1. The State owns 75% of the company and the biggest private shareholder is Firebird investment fund, holding over 14%, the rest is free float. Baganuur JSC is included in the 2011-2012 privatization plan, approved by the parliament of Mongolia in early 2010. Due to the plan, 24% of Baganuur will be sold to the public by the offering of additional shares. The Mongolian Government plans to build TPP-5 in Ulaanbaatar based on Baganuur coal by 2016.

Mogoin Gol JSC Mogoin Gol mine was established in 1970, and now mainly supplies coal to centers of Khuvsgul and Zavkhan provinces and eastern soums of Zavkhan province. In 1983, 1989 and 1995 production capacity had been expanded by investing new mining equipments and machines, increasing to 200,000 tonnes of coal production per annum. In 1995, the company was partially privatized, floating 49% of the company on the MSE. Then the state owned 51% was transferred to provincial government ownership. Currently, the company has 74 employees. Mogoin Gol coal deposit is located in Tsetserleg soum of Khuvsgul aimag, 880km northwestern from UB city and 209km western from Khuvsgul province center. The deposit covers an area of 89 hectares. Total resource is 11.2mn tonnes of coal with 5,2007,100kcal/kg of calorific value, 7.3% ash and 0.9% moisture, of which 3.6mn tonnes are viable to mine by open pit mining. Mogoin Gols average strip ratio is about 5-7. Aduunchuluun JSC The Company was established with underground mining operations in 1954 to supply the Eastern Mongolia Region and Choibalsan city with coal. In 1979, the scope of operations was expanded and capacity increased to 600ktpa. In later years, the Company has been producing 300ktpa and selling coal at $6.6 per tonne. Aduunchuluun deposit is located in 5km from Choibalsan city, a centre of the Dornod province, 650 km east of Ulaanbaatar and 100 km from the Mongolian-Chinese border. The total proven reserves and resources of brown coal are 241.3mt and 423.8mt respectively with gross calorific value of 3,203Kcal/kg, 9.9% ash content, 38.7% moisture, 1% sulphur and 45.8% volatile matter. The deposit is connected with Russia through railway, and it is able to export the coal to Russia and China. The Company plans to increase its production to 1.5-2mtpa as Dornod Power Plants coal demand is expected to increase significantly in the coming years.