SouthGobi Resources will sell its thermal coal Tsagaan Tolgoi property to Modun Resources, netting US$30 million through the transfer of a wholly-owned subsidiary holding both a mining and exploration licence for the deposit.

The US$30 million payment will include a US$7.5 million upfront payment, US$12.5 million in Modun shares and a deferred consideration of an additional US$10 million also payable in Modun shares. This will result in SouthGobi holding a significant stake in Modun.

SouthGobi believes the sale is a positive move for the company as Modun has agreed to accelerate Tsagaan Tolgoi’s development into a mining operation, creating employment and further development in Mongolia.

The company says its focus on the deposit has reduced in recent times, as it is about 400km east of SouthGobi’s core coking coal resources.

“This sale will allow SouthGobi to focus on further developing our Ovoot Khural basin holdings, including our flagship Ovoot Tolgoi Complex and the nearby Soumber Deposit, while retaining an indirect exposure to Tsagaan Tolgoi through our shareholding in Modun,” says SouthGobi’s president Alexander Molyneux. “We also believe that Modun is well placed to be able to bring Tsagaan Tolgoi into production in a timely manner.”

SouthGobi remains focused on exploration and development of its Permian-age metallurgical and thermal coal deposits in Mongolia’s South Gobi region. The company’s flagship coal mine, Ovoot Tolgoi, is producing and selling coal to customers in China. The company plans to supply a wide range of coal products to markets in Asia.

Modun Resources is developing the thermal coal Nuurst project which encompasses a 34.5sqkm licence area in central Mongolia. In late 2011, Modun announced a maiden 489 million tonnes JORC-compliant resource at Nuurst (417 million tonnes of indicated resources and 72 million tonnes of inferred resources). Nuurst is 120km south of the capital Ulaanbaatar and 6km from existing rail infrastructures.

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