Australia-based Aspire Mining Limited (ASX: AKM), the leading pure-play metallurgical coal project developer, has released the updated Ovoot Early Development Plan (OEDP) Extended Case including a mine plan and improved financial outcomes, demonstrating the value that Aspire Mining intends to deliver for all shareholders.
Earlier in the year, (on 28 February and 1 March 2019), the company had disclosed the Pre-Feasibility Study (PFS) outcomes for the OEDP, first-stage of the Ovoot Project, which involved construction of a haul road for delivery of up to 4 Mtpa coking coal to the nearest rail head at Erdenet and other end markets. However, the execution of OEDP remains subject to the long due receipt of the approvals for completing the Definitive Feasibility Study (DFS), that would be followed by commencement of construction and mining. Besides this, Northern Railways LLC, mining subsidiary of AKM, will look after the construction of the Erdenet-to-Ovoot Railway, to expand operations.
Completion of infill and other technical drilling precedent to the DFS are facing delays because of lag in approvals to be received from local community authorities. Keeping these delays on one side, the company has decided to continue with other key components of the study such as logistics costs, mine schedule, and updating the mining costs.
OEDP PFS details:
Revised Outcomes & Key Updates
- Updated Mine Plan
Aspire Mining had improved and presented a rearranged start-up mine plan in its June 2019 Quarterly Report. In which, keeping the total mined volumes of waste and coal same, the initial waste removal is postponed until 2 years and 3 years of mining operations.
- Updated Operating Costs and Pre strip Assessments
Aspire Mining provided the updated mine schedule to local mining contractors and received firm mining cost quotes, that have been utilised in development of an updated financial model while all other key assumptions used in the PFS were maintained including yield assumptions and pricing.
Also, the Company has used consultants to reassess current logistics cost estimates to a degree of accuracy of +\- 10%, which have essentially reconfirmed transport costs from the Ovoot Mine to the Mongolia\China border at Erlian as provided in the PFS. The belief that 100% of the production will be traded into China through the Erlian border is kept intact.
The new mining contractor quoted rates have led to a reduction of 19% in mine gate costs per tonne from USD 32.80 per tonne down to USD 26.40 per tonne over the life of mine (LOM). Up-front capital investment is reduced by 34% from USD 47 million down to USD 31 million due to lower mining costs and deferred capitalised waste removal. Though, the road capital expenditure valuations of US$165 million remains subject to approval for the completion of a definitive engineering study and the final alignment.
Physical & Operating Cost Assumptions
The mine capital expenditure is composed of:
Summary Mine Capital
- Financial Impact of Updated Mine Plan and Costings
The combination of the above amendments increases the OEDP’s pre-tax NPV10 to USD 878 million from USD 758 million, which is an improvement of USD 120 million with all other assumptions maintained. Besides, the pre-tax internal rate of return (IRR) increases to 49.4% from 44.5%.
OEDP Financial Outcomes
A fixed coking coal sale price of USD 150 per tonne was assumed at the China\Mongolian border for the financials given above. Aspire Mining also observed that coking coal prices have dropped over the last three months with seaborne pricing for hard coking coal reaching USD 141 per tonne CFR Jilting Port China (Metal Bulletin 1 November 2019).
In addition, the domestic coking coal spot pricing based on SX Coal data is ~ USD 160 – USD 170 per tonne net of VAT on a delivered basis which equates to USD 130 – USD 140 per tonne at the China\Mongolia border.
Particularly, the before tax NPV10 and IRR sensitivities based on a range of prices are a testimony to the robustness of the OEDP Extended Case as tabulated below-
OEDP Financial Outcomes Across A Range of Prices
- Community Benefits
Aspire Mining is quite encouraged to report higher financial returns with lower forecast mining costs and looking to gain local community support and finalisation of a Community Development Agreement to further mine development.
The company has also completed modelling of community benefits from the OEDP based on the OEDP Extended Case and a fixed price of USD 150 per tonne. Accordingly, the OEDP will employ as many as 450 people and add additional indirect employment opportunities related to the project generating over 1200 new jobs with a total investment of USD 275 million.
Moreover, around USD 33 million of the taxes and fees (in excess of USD 850 million), payable by the project over its first 10 years of operations, would go directly to the local community.
Aspire Mining has a market capitalisation of around AUD 39.92 million with ~ 3.33 billion shares outstanding. On 11 November 2019, the AKM stock is trading at AUD 0.014 (AEST: 03:34 pm).
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