interview with ceo alex molyneux of southgobi

Interview with CEO Alex Molyneux of SouthGobi Resources.
Sept 4, 2011
http://seekingalpha.com/instablog/959816-peter-epstein/213276-interview-with-ceo-alex-molyneux-of-southgobi-resources#comments

Australia's Macarthur Coal vs. Mongolia's SouthGobi Resources
Sept 11, 2011
http://seekingalpha.com/article/292929-southgobi-makes-a-logical-target-for-teck-resources

AKM - excerpt from first article:
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Peter Epstein: SGQ has had great success in its exploration program. Can you give us a big picture update on that program? What are your goals over the next few years?

Alex Molyneux: We have 535 mm MT of resources. All were found through green field exploration. I suspect that we can add another 150 - 200 mm MT. While some coal producers like to show that they have billions of MT of coal resources, our 535 mm MT gives us more than 25 years of mine life. We also have ~65 mm MT of very high quality attributable coking coal resources from our 19.8% stake in Aspire Mining, (AKM.AU)

Peter Epstein: Can you comment on Aspire Mining? There are at least a dozen emerging public and private Mongolian coal companies that you could invest in, why have you only invested in Aspire?

Alex Molyneux: We are well aware of the 'dozen' companies with Mongolian coal exposure. As you can imagine, we have looked at everything. Aspire was our first move because of asset quality. They have the best hard coking coal in Mongolia, maybe in the world. It's very low volatile, very hard, has great caking and plasticity properties and will have a high wash yield. Aspire's Ovoot is a long-term mega-
project. It probably requires US$700 mm of railway development to unlock it but this kind of project can sustain that. Maybe in 2020 we will see 20mtpa of premium hard coking coal from that project being railed to China. We see Aspire's asset as on par with our own because the quality of the ore body (from a potential product margin perspective) overcomes the location issue. Most other companies we see in Mongolia don't fit that profile. The ore body quality and location mix doesn't work in most other cases.

Peter Epstein: Do you expect that many of these emerging coal producers will reach their production goals, even if delayed and over budget? Or, do you think that they will never get off the ground?

Alex Molyneux: Mongolian coal will be like emerging iron ore of Australia. As Fortescue Metals started up there was so much excitement all over Western Australia and so many little iron ore wannabes popped out into listed companies. The reality though, is that 5-6 years on, there's no meaningful action out of areas like the mid-west region in Australia for iron ore. Coal, like iron ore is a low value bulk, so logistics is the key.... it's a "location, location, location" story. You can't have equivalent or worse coal quality to SouthGobi and be hundreds of kilometers further west or north of China and credibly expect to be able to come into meaningful production soon.

Aspire is different because the coal quality will overcome their logistical challenges but even they won't be a 5mtpa producer anytime soon. I suspect a bunch of projects get moving and a bunch just never happen.