Aspire Mining closer to developing Ovoot with China-Mongolia ties

Aspire Mining (ASX:AKM) is a step closer towards developing its Ovoot Coking Coal Project in Mongolia after Chinese President Xi Jinping’s official visit to Ulaanbaatar last week upgraded ties between the two countries to a comprehensive strategic partnership.

For Ovoot, the agreements reached between the two countries will provide:

-    More efficient transport across border points on the Mongolian-Chinese border;
-    Ability to negotiate rail access to a number of Chinese North-Eastern seaports; and
-    Potential access to Chinese financing set aside specifically for mineral resource and infrastructure development in Mongolia.

President Xi’s visit to Mongolia was the first by a Chinese head of state in 11 years and comes on the 65th anniversary of the establishment of diplomatic relations between two countries.

His trip was intended to support Mongolia's bid to export its goods via a trans-shipment route through China, enhancing trade and economic cooperation between the two countries.

“This state visit by the Chinese President is an important milestone in Sino-Mongolian relations and should lead to the significant increase in trade sought through to 2020,” managing director David Paull said.

“Coal exports will be a leading contributor to this increase in trade.

“The agreements for access to a number of seaport options for Mongolian coal will also assist in attracting investment into the sector.”

China/Mongolia Ties

During President Xi’s visit, 24 Memoranda of Understanding and Agreements were signed outlining strategic cooperation initiatives between the two countries in sectors including infrastructure development, financing, education, trade, and tourism.

Many of the Agreements were related to infrastructure development within Mongolia, and access to both rail and north-eastern sea ports in China to not only facilitate increased levels of trade bilaterally but also internationally.

Six seaports, including the major ports of Tianjin, Dalian, and Jinzhou were named to enable Mongolian exports to seaborne markets. Border crossing co-operation and access to rail capacity within China was also covered.

China also agreed to participate in a trilateral summit between Russia, Mongolia and China with trade and security interests being high priorities. A date for the summit is to be agreed.

Mongolia is also set to host an official visit from the Russian President Vladimir Putin during the first week of September, where it is expected a number of similar agreements between Russia and Mongolia will be signed. 

The visits to Mongolia by both Heads of State from China and Russia signify the importance of Mongolia to its closest neighbours and the beginning of long term trilateral cooperation.

Ovoot Coking Coal Project

The agreements add to the progress that Aspire has achieved for the wholly-owned Ovoot project in northwestern Mongolia as well as the key Northern Line Rail Line (NRL).

Current offtake interest in Ovoot coking coal exceeds targeted production with MoUs signed for up to 7.4 million tonnes per annum, or 148% of planned initial production.

The project – along with the Tavan Tolgoi Coal operation – has also been recognised as one of the key potential coal suppliers to Mongolia’s Sainshand Industrial Park.

It has also signed a non-binding MoU to sell up to 250,000 tonnes of oxidised coal per annum to Zavkhan Power Station about 70 kilometres south of Ovoot.

This provides a potential revenue stream from a product that would otherwise have been considered a waste material.

The MoU includes the construction of transmission infrastructure that will allow the supply of 35 megawatts of power per year to Ovoot.

Aspire is also focused on progressing the 547 kilometre NRL that will extend a multiuse railway from Erdenet towards western Mongolia.

It continues to reduce overhead expenditure while waiting on approval to begin construction.

SMEC International has also been commissioned to prepare an updated rail operating cost model.

Non-binding expressions of interest have been received from a number of financial institutions that include the Noble Group for provision of a total US$1.3 billion to construct the railway based on the 2013 Rail Pre-Feasibility Study.

The line has previously been forecasted to be completed in 2018 and will have capacity to carry up to 22 million tonnes per annum of multi-user capacity that includes commodities, goods, and passengers.

Notably, a Mongolian Parliamentary Standing Committee has approved draft amendments to Mongolia’s 2010 National Rail Policy. 

The amendments include the extension of the Trans-Mongolian Railway from Erdenet to Mogoin Gol (near Ovoot), and to the Russian border at Arts Suuri.

These amendments were debated in Parliament on 1 July 2014 and are expected to continue to be debated when Parliament resumes. 

The extension of rail to Arts Suuri and the Russian border has potential long term transport benefits for the Ulug Khem Coal Basin (also known as the Elegest Coal Basin) in Russia’s Tuva province. 

Aspire recently met with a number of holders of coal deposits in this region and there is scope for cooperation on infrastructure and marketing with Aspire over the medium to long term.

Separately, the company has started a Scoping Study with Tak-Raf to assess feasibility of a 10 million tonne per annum coal blending operation at the planned Sainshand Industrial Park.
        
Analysis

The agreements between China and Mongolia will benefit Aspire Mining by providing boosting trade, particularly of coal exports. 

More specifically, it will provide the Ovoot Coking Coal Project more efficient transport across border points; allow negotiations for rail access to a number of Chinese North-Eastern seaports; and potentially access Chinese financing.

Access to seaports will also assist in attracting investment.

Proactive Investors continues to maintain a 6 – 9 months share price target of $0.125 per share subject to the rail concession being granted for NRL.

The rail concession will be a catalyst for a major re-rating of Aspire’s share price. 

Aspire had $3.5 million in cash as of 30 June 2014.