Exploration

Exploration Drilling

In 2005, QGX drilled 137 drill holes totaling 34,204 m, using HQ3 core, open-hole PCD (poly-crystalline diamond), and reverse circulation (RC) drilling methods.

By late May, 2006, QGX had drilled an additional 72 drill holes, with total drilling meterage by QGX at Baruun Naran now over 56,000 m.

Drill holes are typically not vertical, rather drilled at low angles designed to intersect the seams at right-angles.

Down-hole surveys are carried out every 50 m, and these surveys, combined with either the dip of beds in the core or extrapolation from cross-sections, are used to ascertain the true thickness for each seam.

Baruun Naran Exploration Drilling Table Item Drilling Method TOTAL Core PCD RC Meters drilled 2005 11,036 19,976 3,192 34,204 Meters drilled 2006 1,256 20,680 0.00 21,936 Total 12,292 40,656 3,192 56,140

Baruun Naran - Drill-hole location plan

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Geophysics

Data Verification by Down-hole Geophysical Logs

Down-hole geophysical logging is widely regarded as the industry standard to provide accurate coal seam thickness determination from the density or gamma-gamma logs. Density and gamma logs have been successfully recorded in all QGX holes at Baruun Naran, and have been used to verify actual and true seam thickness.

QGX Geophysical Surveys

A gradient-array resistivity survey began in July, 2005 and continued into November 2005. The gradient-array survey was extended more than 13 km down the Baruun Naran valley in 2005. The processed gradient-array data shows features that exhibit high resistivity at shorter wavelengths (i.e., coal seams) as brightly coloured (pink-red) bands.

In the late spring of 2006, the gradient-array survey was extended over shallow Permian sub-crop to the west of the Baruun Naran valley. This work extended the survey to the western edge of the Licence block. The augmentation of the survey covered another 15.5 km2 of terrain thought to be prospective for coal.

Baruun Naran – 2005/2006 Resistivity Gradient Array

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Trenching

QGX used trenching successfully in the 2005 exploration programme to aid the delineation of strike and seam sub-crops for initial definition of the general structure of the deposit.

A total of 40 trenches, ranging from 20 m to 2,600 m in length, were excavated for a total length of 19,026 m. Trench depths ranged from 4 m to 7 m. For safety reasons, trench lithologies were mapped using sample piles collected by the excavator approximately every 5 m.

Baruun Naran - Trenching

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Geological Modelling

A 3D computer based geological model was produced of the Baruun Naran deposit was created by McElroy and Bryan Geological Services using Surpac-Minex’s stratigraphic modeling package “Horizon”.

The initial model was created in March 2006 and has been updated with recent data in May 2006. Over 200 holes have been drilled at Baruun Naran, however, as the geological model does not yet cover the full extent of the deposit, the current database includes seam intercept data from some 170 boreholes (56 of which were partially cored and include coal analytical data).

3-D views of the model displaying the floors of the H500 (purple), N500 (blue) and T500 (gold) seams to demonstrate the overall structure of the eastern end of the deposit.

Geological model – viewing east to west (down syncline plunge)

click image to download pdf   Geological model – viewing north to south (across syncline)   click image to download pdf

Additional Exploration

QGX’s exploration to date has focused on an area of approximately 10 km x 2 km at the northeast end of the Baruun Naran valley. This was the site of the original Soviet-Mongolian drilling.

The aerial landsat image depicts areas within Licence #4326 that QGX considers as prospective for coal. The green box shows the current work area.

Detailed evaluation by QGX geologists has focused on several priority areas that are the object of continued exploration interest (Areas 1–5).

Click on links to view image of each area. To download PDF of entire map, click on the image below.

Area (1) Testing of this area is scheduled to continue in the 2006 drilling programme.

Area (2) is a prospective zone occurring along strike with the Baruun Naran valley. QGX mapping and trenching in 2005 have shown that a significant part of the area may be underlain by Tavan Tolgoi Formation, host to the coal seams. QGX has extended the gradient-array geophysical survey from the Baruun Naran valley into this ‘far western block’, and the new geophysical data are still being evaluated.

Area (3), located to the south of the main valley, has been covered by a gradient-array geophysical survey late in 2005. The survey revealed linear resistors similar to those located to the north that are known to correlate closely to coal. Preliminary drill-hole tests of this area indicate a high fraction of coarse clastic sedimentary units in the local stratigraphic section, however, and coal seams of potential economic interest have not yet been intercepted.

Area (4) is found immediately to the south of the Tavan Tolgoi coal deposit, approximately 15km to the southeast of Baruun Naran. This area lies in a topographic depression with dimensions approximately 9 km x 3 km, mantled by Quaternary deposits. QGX believes that the area’s proximity to the known coal-bearing strata to the north at Tavan Tolgoi make this prospect worthy of close scrutiny. QGX plans to conduct geologic mapping, geophysical survey, and/or drilling in this area in the future.

Area (5) covers the southern third of the Licence block and represents another swathe of Quaternary cover. QGX geologists believe that the possibility exists for coal-bearing Permian formations to underlie part of this area. On this basis QGX intends to conduct in this area geological mapping, and if warranted, geophysical surveys and drilling.

Landsat image of the QGX exploration Licence (showing 5 prospective areas)

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Adjacent properties

The Baruun Naran coal deposit is located approximately 20 km to the SSW of the Tavan Tolgoi coal deposit. Baruun Naran represents the westward extension of the same coal-bearing rocks that host Tavan Tolgoi. Both deposits are part of the Permian Ulaan Nuur coal basin. It is therefore not surprising that Tavan Tolgoi and Baruun Naran share many geological similarities.

Exploration at Tavan Tolgoi has been ongoing since the 1950’s, by both Soviet/Mongolian exploration teams, and later BHP and others. Exploration includes approximately 3,000 drill holes and has led to the delineation of a significant coking and thermal coal resource/reserve.

The Russian reserve estimate for Tavan Tolgoi is ~730 million tonnes of coking quality coal and 500 million tonnes of thermal coal, whilst total coal resources (measured, probable and inferred) measure 3.58 billion tonnes (Mongolian Geological Information Centre).

Small-scale coal mining has been ongoing at Tavan Tolgoi for some time, commencing in the 1960's and continuing intermittently to the present day. Coal is currently produced from several small open-pits, with less than 1 Mtpa exported by road to China.