Aspire Mining to supply Ovoot coal to Zavkhan power station

Aspire Mining (ASX:AKM) has demonstrated the quality of its Ovoot Coking Coal Project in Mongolia, reaching a non-binding Memorandum of Understanding to sell up to 250,000 tonnes of oxidised coal per annum to Zavkhan Power Station.
    
Notably, this provides a potential revenue stream from a product that would otherwise have been considered a waste material.

Small quantities of oxidised (non-coking coal) would have been produced as part of the Ovoot Project mine plan and is not included in its Probable Coal Reserves of 255 million tonnes.

The MoU also covers the supply of 35 megawatts of power per year to the Ovoot Project from Zavkhan.

The Zavkhan Power Station, located 70 kilometres south of Ovoot, is currently been constructed by New Asia Group, which has a concession to build, own and operate this power station to supply northern Mongolia with power.

It is expected to be commissioned in late 2015.

Ovoot Coking Coal Project

Aspire Mining has made considerable progress on its wholly-owned Ovoot Coking Coal Project in north western Mongolia as well as the Northern Line Rail Line (NRL).

Current off take interest in Ovoot coking coal exceeds targeted production and the project is – along with Tavan Tolgoi – recognised as one of the key potential coal suppliers to Mongolia’s Sainshand Industrial Park.

Non-binding MoUs have been reached with four Chinese and two Russian customers for the supply of up to 6.9 million tonnes per annum of coking coal. 

This covers 138% of initial annualised production rate of 5 million tonnes.

The company is currently awaiting approval for construction of the 547 kilometre NRL that will link the project to existing rail infrastructure.

Notably, it has already received financing interest for the US$1.3bn to construct NRL. It may also find funding support from Russian institutional investors for both NRL and Ovoot development.

Ovoot has an Open Pit Probable Reserve of 247 million tonnes of which 182 million tonnes is marketable coal with 9.5% moisture content and a further Underground Reserve of 8 million tonnes of which 6 million tonnes is marketable coal with 9.5% moisture content.

It also includes a 25 kilometre long extension to the east that includes the Hurimt and Zuun Del prospects that are highly prospective for additional coal resources in the Ovoot Lower Seam that sits just above basement rock. 

The Ovoot lower seam represents the largest of the three seam packages that have been identified within the project area.  

Testwork has also confirmed that Ovoot is capable of producing a premium blending coking coal that is classified by Chinese customers as “FM Premium Fat Coal”, and by Russian customers as “Zh Fat Coking Coal”. 

Indicative washed coking coal specification include a moisture content of 9%, ash 9%, volatiles 25 – 28%, sulphur 1.2%, Crucible Swelling Number 9 (highly desirable 9 being maximum rating), Maximum Fluidity Log 3.60, Maximum Dilation +300%, Gray King G11, G Caking Index +26, and RoMax 1.2.  

The high quality of Ovoot coking coal makes it ideal as a blending coal with lower quality or non-caking coals to produce a high quality end coke product. Successful trials have been completed that used a variety of low coking, thermal and oxidised coals derived from Australia, Mongolia and Russia on both a 50% and 25% blend basis.

Analysis

The agreement with Zavkhan Power Station highlights both the quality and breadth of coal products that could be produced from Aspire Mining’s Ovoot Coking Coal Project.

That oxidised coal, previously considered a waste material and thus excluded from the Probable Reserve of 255Mt, would provide an additional revenue stream is certainly a positive and could be the tip of a large iceberg.

Coupled with existing non-binding offtake agreements for its primary coking coal product, there is clear demand for coal produced from Ovoot.

While coking coal prices remain sluggish, this will have little impact on development of Ovoot as demand will be driven by very long term demand trends emanating out of China, (likely Russia) and the rest of Asia.

Proactive Investors continues to maintain a price target of $0.125 within 6-9 months for Aspire.