Aspire Mining in "game changing" Mongolian coal deal with Noble Group Thursday, January 10, 2013 by Proactive Investors
With the backing of Asia’s largest diversified commodities trading company, Noble Group, Aspire is moving into prime position for the development of the Ovoot coking coal project. Noble has agreed to provide additional support for the project’s port and rail solutions as well as increase its investment in Aspire.
Aspire Mining (ASX: AKM) has snared a major deal with Asia’s Noble Group (SGX: N21) that will provide additional signficant support for the development of Ovoot Coking Coal Project’s development.
Noble and Aspire have extended their strategic alliance, first entered into in November 2011, which will deliver several port and rail solutions for the Mongolian project including potential access to Noble’s recently acquired Russian Far East Port.
Access to seaborne markets is a key part of Aspire’s development strategy for its world class Ovoot Project, and importantly there is a path for Mongolian coking coal through Russia now.
Currently Mongolian coking coal is largely being sold to Chinese steel producers and it is a key part of Mongolian development policy to establish access to seaborne markets for Mongolian coal, to provide pricing tension with Chinese customers and establish seaborne price benchmarks for Mongolian coking coal.
David Paull, managing director of Aspire Mining, told Proactive Investors today the deal represents a broad range of support from a significant shareholder who is in the business of logistics and coal marketing and trading, and who operates in Russia, Mongolia and China in coal and iron ore.
The revised arrangements with Noble will facilitate Noble’s provision of additional supply chain management services to Aspire.
It will also provide potential access to Noble’s Russian Far East Port, while retaining Noble’s overall obligation to assist Aspire to identify potential logistics partners to deliver coal to customers and identifying viable logistics paths.
Paull said: “This package of initiatives demonstrates the company’s excellent working relationship with the Noble Group as well as Noble’s commitment to the successful development of the Ovoot Coking Coal Project.”
Key terms of alliance
Under the extended strategic alliance, Noble has agreed to:
- Provide underlying supply chain management services on normal commercial terms;
- A mechanism to provide access to its recently acquired Russian Far East Port on normal commercial terms;
- Provide additional marketing support to the Ovoot Project by way of Noble acquiring marketing rights over an additional 10% of all coal produced at the Ovoot Project for 20 years on normal commercial terms.
This additional support follows Noble's previously agreed right to market a minimum of 50% of coking coal produced by the Ovoot Project until it produces its first 5 million tonnes;
- Commit to funding 10% of the pre-development capital for Northern Railways LLC in return for an option to acquire 10% of the issued capital of Northern Railways (Aspire’s rail infrastructure subsidiary);
- In the event that Northern Railways secures a rail concession and Noble exercises the above option to acquire 10% of the issued capital of Northern Railways, Noble has agreed to assist in developing Northern Railway’s rail financing plan.
This includes introductions to strategic infrastructure partners as well as considering opportunities to connect this new rail infrastructure to various railway lines in Mongolia, China and Russia together with identifying potential logistics partners in those places;
- An option to fund 10% of the development capital in Northern Railways to build the Erdenet to Ovoot railway and should it do so, together with a number of other circumstances, it will acquire an additional 10% marketing rights over all Ovoot Project coking coal on normal commercial terms for the same 20 year period referred to above;
- Provide a two year US$5 million unsecured loan to assist with rail predevelopment expenditures;
- Commit to a placement of 35 million shares at A$0.08 each to increase Noble’s shareholding in Aspire from 10.1% to 14.9%, raising A$2.8 million;
- To enter into good faith negotiations regarding the provision of a further working capital debt facility to support a 75,000 tonne per month initial mining operation at the Ovoot Project; and
- Appoint a Noble representative to the Aspire Board.
Northern Railways
Aspire and certain subsidiaries, including its Mongolian rail subsidiary Northern Railways, has entered into a number of agreements with Noble to support the development of Northern Railways multiuser Erdenet to Ovoot rail line and the development of the Ovoot Project.
Northern Railways previously completed a Rail Pre-Feasibility Study in relation to the Northern Rail Line in February 2012.
Subsequently a potentially superior rail alignment running about 50 kilometres to the south of Moron was identified which is now the subject of a Pre-Feasibility Study revision being undertaken by SMEC International.
The revision, expected to be completed in the March quarter, will look at providing operating and capital costs for a phased construction and capacity upgrade investments.
Under the strategic alliance, Noble has agreed to support the Northern Railways application for a rail concession to extend the existing Trans-Mongolian rail line from Erdenet to the Ovoot Project.
Analysis
The ongoing strategic alliance with the Noble Group is a "game changing" deal for Aspire, and recognises the vast scale of the company’s Ovoot Project and profit potential.
The additional support will provide key rail and port solutions for the supply of coking coal to the high value seaborne market.
The backing of Asia’s largest diversified commodities trading company ensures Aspire is back on track to meet its end goal of developing seaborne markets for its Mongolian coking coal.
Recently, a revised Pre-Feasibility Study showed the Ovoot Coking Coal Project in Mongolia could become one of the lowest cost producers of coal into China. Life of mine ex mine gate cost is estimated at $36 per product tonne of quality coking coal.
To have one of the potentially lowest cost sources of coal into China (Free On Rail costs) for quality coking coal into China, (at around $91 per tonne), which is the world’s largest consumer of coking coal, is a significant selling point for financiers and a filip to project development - which Noble Group is a significant equity and project participant.
Ovoot ranks as the second highest coking coal reserve in Mongolia. It also ranks in the middle of Tier 1 coking coal assets based on reserves and marketable coal. With a 96-97% vitrinite content it identifies Ovoot as one of the highest value in-situ coal deposits globally.
In November 2012 when the Aspire share price was $0.07, Proactive Investors said, "we believe the quality of the Ovoot asset plus the global significance of the project and increase in value added for the Ovoot project is nowhere near reflected in the Aspire Mining market valuation."
Further, that "Proactive Investors believes that the market cap of Aspire Mining and share price is significantly undervalued at present and should be trading at closer to $0.16-$0.20 within the next 6-12 months".
AKM Price at posting:
9.0¢ Sentiment: Buy Disclosure: Held
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