The Ulaan-Ovoo coal deposit is Jurassic in age and is typical of the Sharyn Gol type of coal deposit in Mongolia. The coal comprises a single seam in the north-western part of the syncline and splits to the southwest forming two thick coal sequences (seams) which are relatively thick and flat lying. These seams host thick groupings of coal plies separated by thick clastic layers derived from flood events and ash falls which occurred during the time of coal deposition. The primary source of the flood induced sediments was to the south and southwest, and the parting thicknesses increase in that direction. Although the overall geometry is typical of coal mining deposits, the seams are generally thicker than usually encountered, ranging from a total of 15 to over 85 metres in thickness, and averaging 45 metres throughout the deposit area.

The Ulaan-Ovoo coal deposit, which is part of the 520 m thick Sharyn Gol formation, has two main coal seams that contain five sub-units of coal.

Mod Coal Seam (formerly Coal Seam I): This seam is the lower of the two main coal sequences. It merges with the upper and thicker Gol Coal Seam in the north-eastern part of the area and splits to the southwest. It is well developed in the western part of the syncline. Its thickness ranges from 2.0 m to 7.5 m and thins in the south-western part of the deposit. The seam contains up to three partings with thicknesses of 0.56 m to 0.77 m. In the area where it is best developed, the Mod Coal seam is separated from the Gol Coal Seam by a sandstone parting which may exceed 30 m in thickness.

Gol Coal Seam (formerly Coal Seam II): This is the uppermost of the two main coal seams. Because of limited drilling south of the Central fault, it had previously only been clearly defined in the northern half of the syncline. It has relatively consistent thickness in the northern half of the deposit, ranging from 29.8 m to 63.9 m. In the west, the Gol Seam splits into two major subseams, and its aggregate thickness diminishes where it splits. Further to the west sub-seam the lower split further subdivides into two smaller sub- seams. The Gol seam may contain as many as 11 partings. These partings consist mainly of clayey rocks and coal-bearing mudstone with a thickness of 0.15 m to 1.0 m.

Several thin coal beds are encountered to the west of the syncline, in the lower part of the middle member of the Sharyn Gol formation (J2-3 chg). Their thickness ranges between 0.9 m to 2.0 m. The extent of these thin seams is not known at this time, but they do not add materially to the coal resource base of the deposit.

The recommended mining method is an open cut operation, using conventional truck-and-shovel mining equipment. With the low strip ratio, the overburden removal rate is not high enough to justify assessment of high capital cost lower operating cost methods including in-pit crushing and conveying, and trolley assist for trucks.

As the seam dips at Ulaan Ovoo are typically around 20 degrees, it is likely in-pit spoil dumps would not be stable and hence waste will be hauled to an outside waste dump to the west of the pit. The coal will be hauled to the ROM crusher located to the east of the pit.

The mine will advance in a series of pushbacks off the highwall. Below the alluvium, the overburden will be drilled and blasted in bench heights to suit the excavators. Successive benches will be mined, with overburden and coal hauled via temporary ramps on the highwall. In the lower benches, coal and parting will be selectively mined to a minimum thickness of 0.5 metres. Tracked dozers will assist with ripping and pushing thin seams and partings to the excavator, and with clean-up of coal roof and floor.

Because all waste and coal will be hauled via the highwall, provision has been made for two haulroad ramps on the highwall so that loading and hauling operations on the upper benches of a pushback do not interrupt concurrent haulage from the lower benches of the previous pushback.

The outside waste dump will be dumped in layers, with the final dump batters progressively shaped to 10 degree slopes, covered with topsoil pre-stripped from the mining operation and revegetated.

Major assumptions in the development of CHPP design criteria for the coal handling and preparation plant include.

ROM coal, from the mining operation, is assumed to be delivered to the ROM dump on a continuous basis for 5,800 operational hours per annum. Differing ROM coal qualities will need to be handled and processed separately from the pit through to zones on the product coal stockpile. It is expected that at least two ROM coal types will be mined simultaneously (after year 3) – one of a bypass quality and the other of a high ash quality that requires washing.

The CHPP plant is based on a 1000tph coal handling, sizing, washing, and stockpiling design. A single 126,000t capacity (As-stacked) product stockpile will be suitable for both bypass and washed coal products.

Thermal coal product specifications have been referenced from the April 2006 core drilling program and from the August 2008 bulk sampling program. It is understood from Red Hill Energy that the thermal coal products envisaged shall have an average energy of 5050kcal/Kg (net as received).

Ulaan Ovoo coal processing to be based on 24 hour per day 7 day per week operations. Ulaan Ovoo operating labour will be based on a 12 hour shift, 4 panel, and 7 day per week roster.

Coal washing is required only for Seam 1 (Mod) and not for the overlying Seam 2 (Gol). From Year 3 onwards the mine plan calls for Seam 1 and Seam 2 to be mined in parallel as the mine proceeds down-dip and towards the Zelter River.

The Gol seam is typically lower in ash and suitable for bypass operations throughout life- of-mine. The underlying Mod seam is higher in ash and therefore requires washing to meet the export product specification of 15% ash. The coal handling plant design allows for instantaneous switching from bypass operations (no washing) to washing operations and back again. By this means it will be possible to minimize in-pit coal stocks and to maintain sufficient product coal stocks for both washed and bypass coal products.

The wash plant facility is designed to cater for the occasional period where high ash Gol seam material is encountered or where mining conditions require the washing of both Gol and Mod seams. Reference coal types in the region have been used to estimate the wash plant yield, which is assumed to be 80% at an SG of 1.80 and product ash of 15% (ar).

Coal washability analysis, undertaken on fresh cored samples, will be of benefit in determining the incremental ash cut-point appropriate for Gol seam ROM coals and for the purposes of finalizing the wash plant design for Ulaan Ovoo.

The CHPP facilities consist of the following:
- 350t Capacity ROM Dump Station complete with 1000 t/h Primary Feeder Breaker;
- Two-stage raw coal sizing and screening plant to receive and to size the ROM coal to 50 mm nominal top size at a maximum rate of 1000 t/h;
- 1000t/h Linear Luffing Stacker and 126,000 t capacity coal stockpile for both raw coal bypass and washed product coal products;
- 300t Wash Plant Surge bin feeding a single 1000 t/h Wash Plant;
- 1000 t/h Wash plant consisting of single stage dense medium cyclones (DMC) to process the coarse coal (+1.44 mm w/w) and Spiral Separators to treat the fine material (-1.44 mm w/w + 0.250 mm). Tailings (- 0.250 mm + 0 mm) will be thickened and dewatered. Coarse rejects will be conveyed to a 240t Rejects Bin and then disposed of in-pit or within spoil dumps. Slimes shall be pumped to tailings dams where clarified water shall then be returned to the wash plant for re-use;
- 4000 t/h product coal reclaim system via four coal valves and reclaim tunnel;
- 4000 t/h Train-loading system to reclaim both bypass coal and washed product coals to train loadout operations;
- 300t Train loadout bin complete with 100t weigh flash to rapidly load trains;
-Supporting services and infrastructure for the CHPP facility.