"Draig Resources considers acquisitions in Mongolia and...

"Draig Resources considers acquisitions in Mongolia and Indonesia; would consider JV partner in Mongolia, execs say
by Divya Balji and Andrew Cheng in Hong Kong
March 22 2012

Draig Resources (ASX: DRG), the Australia-based coal mining company, is looking at acquisition opportunities in Mongolia and Indonesia, said Mark Earley, Managing Director, and Andrew Harrison, Director. The company recently acquired eight licenses in Mongolia from Peabody-Winsway Resources for USD 7.8m in cash and 1% royalty on future production. “We’ve screened over a hundred [opportunities] and 95% of them we wouldn’t touch,” he said on the sidelines of the Mines and Money Hong Kong conference. If local owners aren’t receptive to Draig conducting due diligence on potential targets, it will rule out the opportunity. Also, targets with large JORC resources but poor quality coal will not be attractive, he said. While the company is considering acquisitions in Mongolia and Indonesia, Earley said that Draig could hold off on making an acquisition in Indonesia until there is some clarity on a new mining law.

“The law will change things in Indonesia,” Harrison said, in reference to the decree signed by President Susilo Bambang Yudhoyono in February. This would limit foreign ownership in mines in the country, where foreign operators would be required to reduce their stake to 49% within 10 years. Azure Capital is Draig’s corporate advisor, and it also has working relationships with Canaccord BGF and Rencap, Earley said. It does not need technical advisors. Draig’s COO Yin Wong and Earley have the field experience to take Greenfield projects into production, he added. China is the world’s largest consumer and second largest importer of coal, according to a Draig corporate presentation. In 2010, China imported 129m tonnes of thermal coal and 48m tonnes of coking coal, according to the presentation. Draig, with a market capitalization of AUD 21.3m, would be interested in bringing on an end user such as a Chinese steel mill as a joint venture partner on its current assets in Mongolia.

However, it is not actively looking for such a partner right now, Earley said. “If people approach us, we’d be happy to talk to them,” Earley said, but noted that Draig would like to develop these assets before they bring a partner on. It is not interested in bringing on a mining company or a trading house as a partner, he emphasized. A partner would be “someone that can bring something that we need to the table”, he added. Draig’s eight licenses in Mongolia are split into four in the South Gobi province and the other four are in the Ovorhangay provinces, according to the presentation. When asked if the company could eventually be acquired by coal majors, Harrison said that Draig has seen interest from other mining companies. However Draig is “not building a team to promote [our assets] and get acquired. We’re building a team to develop [our assets]”, Earley said."