Aspire Mining’ Mongolian Coking Coal Portfolio In Focus

Aspire Mining Limited (ASX: AKM) is a metals, mining and infrastructure company exploring for and developing its world class metallurgical coal assets in Mongolia to deliver long-term returns to shareholders while contributing to the social and economic upliftment of the local communities.

Metallurgical coal, also known as Coking coal, with its unique caking ability, is used to produce coke, one of the imperative constituents in steel production. Brown coal, lignite and anthracite, all are different varieties of coal found globally.

Aspire Mining’s Project Portfolio

1- Ovoot Coking Coal Project (100%-owned)

The large scale Ovoot deposit is located in Khuvsgul, north-west Mongolia with a current JORC Probable Reserve of 255Mt. It was identified by the company in 2010 to 2012 and was granted a Mining Licence in 2012. Aspire is planning early production of washed coking coal from a first-stage development of the Ovoot Project, known as the Ovoot Early Development Plan (OEDP).

The OEDP will involve a truck and rail operation to deliver 4Mtpa to end markets within 12 to 15 months as the final operational and Board approvals are secured. The operations would be further expanded with the building of Erdenet-to-Ovoot Railway connectivity, that is being looked after by Aspire’s subsidiary, Northern Railways LLC.

The project spans an area of 130 km2 and the company has spent a total of USD 50 million to date in development capital on the project. A Pre-Feasibility Study (PFS), in collaboration with the lead PFS consultants, FMS LLC, was completed in February 2019.

Outstanding Pre-Feasibility Outcomes

Base PFS Case:

  • Unleveraged pre-tax NPV10 of USD 586 million, IRR of 43.7%, including mine, logistics, waste pre-stripping and haul road capex;
  • Life of Mine (LOM) net direct C1 Cost of USD 81/t delivered to the China border at Erlian that would make Aspire Mining’s reach to the position of second quartile producer on the global cost curve;
  • Average annual EBITDA of USD 172 million and payback expected within 24 months from start of commercial production with LOM EBITDA of USD 1.6 million;
  • The PFS also suggested single open pit operation with a LOM strip ratio being 4.6:1 Bcm/t;
  • Steady state washed, saleable “fat” coking coal production of 4.0Mtpa over an initial mine life of 9.2 years (a tiny proportion of the whole Ovoot Reserve);
  • The Capital Expenditure estimated from the PFS for OEDP is:
    • USD 63 million for the mine and logistics.
    • USD 47 million required from pre-stripping to commercial production.
    • USD 165 million before contingencies for constructing a surface stabilised haul road spanning 560 km between Ovoot and Erdenet’s rail terminal.

The Road DFS has commenced and scheduled to be completed by May 2019.

Extended Case:

In case, the company plans to further cutback the OEDP pit –

  • Mine life increase to 12.5 years at 4.0Mtpa steady state.
  • A pre-tax unleveraged NPV10 of USD 758 million; IRR of 44.5%.
  • Additional potential for mine life expansions associated with a longer life continuation of the OEDP.

Aspire Mining has also been advancing the financing process with strong ongoing support from major shareholders Mr Tserenpuntsag and Noble Group while excellent preliminary interest has been expressed by different specialist financiers to provide debt funding for the mine, wash plant and/or road.

Meanwhile, the company has also commenced the fully-funded Definitive Feasibility Study (DFS) for OEDP with completion scheduled initially assumed to be before the end of 2019. However, approvals for the Ovoot Mine and the Ovoot-to-Erdenet Road as part of the DFS are still pending while winter is approaching. As a result, hydrological and geotechnical may be extended beyond 2019 and thus DFS is anticipated to be completed by May 2020.

If the financing is secured as planned, and the permits are also in place by Q1 2020, the pre-stripping of waste can occur from Q2 2020 onward.

2. Nuurstei Coking Coal Project (90%-owned)

The Project is located ~ 160 km east of the Ovoot Project and around 10 km from Moron, Khuvsgul’s provincial capital and is also linked to the nearby rail head at Erdenet through a sealed road connectivity. The project is currently being assessed by Aspire Mining for near term mine development, and production of washed hard coking coal.

  • Northern Railways LLC a Mongolian registered company, a SPV setup by Aspire Mining, which is responsible for the oversight of all aspects of pre-development, construction, and operation of the Erdenet to Ovoot railway.

Market Opportunity in China

Aspire is targeting maiden production by mid-2021 with majority of its fat coking coal being marketed and sold to steel mills in northern and north-eastern China and Russia. Among the top 84 largest steel companies in China, 48 companies have operations located in the northern provinces and municipalities.

Source: AKM’s Presentation at Discover Mongolia Summit 2019

According to the results of a Coal Quality Competitive Assessment of OEDP in Chinese markets conducted by Fenwei Energy Information Services Co Ltd (global coal market consultants), it was estimated that the overall Chinese metallurgical coal market would be relatively balanced until 2025 alongside an increasing demand for quality Fat Coking Coal.

The report also identified that there is going to be a supply gap of 16–22 Mt per annum for Fat Coking Coal until 2025 and China’s Hebei Province would most likely provide the highest value markets for Ovoot Fat Coking Coal production with a long-term price forecast range of RMB 1,217 (USD 176\t) to RMB 1,307 (USD 191\t) per tonne.

Stock Performance:

Aspire Mining’s market capitalisation stands at around AUD 39.92 million with approximately 3.33 billion shares outstanding. On 11 October 2019, the AKM stock is priced at AUD 0.012.


Disclaimer

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