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  • Aspire Mining: Study Positions Ovoot As Potential Low Cost Coking Coal Producer 0 comments
    Dec 5, 2012 7:07 PM

    Aspire Mining (ASX: AKM) has completed a revised Pre-Feasibility Study that shows the Ovoot Coking Coal Project in Mongolia could become one of the lowest cost producers of coal into China.

    The PFS Revision is based on a large Open Pit mine delivering up to 14 million tonnes per annum and a small Underground mine delivering up to 0.75 Mtpa of raw coal over 20 years.

    In August 2012 the company was granted a Mining Lease MV 017098 which covers the planned Ovoot Open Pit and Underground operations.

    The Project review identified significant operational savings from the mine plan now having a large proportion of backfilling and using an owner miner model.

    Life of mine ex mine gate cost is estimated at $36 per product tonne of quality coking coal.

    Free On Rail costs for quality coking coal into China are forecast by Xstract Mining Consultants at just $91 per tonne (excluding royalties) for the first five years of full production.

    This is against a projected medium term average coking coal price of $200 per tonne, showing a strong margin forAspire Mining.

    The Ovoot Project Pre-Feasibility review confirms robust economics for a large, long life coking coal project with a Net Present Value for the mine of US$1.7 billion.

    This would prodcue a life of mine net cash surplus after all taxes and capital of US$8.3 billion.

    The review includes the recently announced increase in Probable Coal Reserves to 219 million Run of Mine ("ROM") tonnes, making Ovoot the second largest coking coal deposit in Mongolia by Reserves.

    ROM tonnes modelled totals 224 million tonnes of mining inventory (including inferred coal), producing 184 million tonnes of coking coal over 20 years and annual production of up to 12 million tonnes.

    Xstract Mining Consultants signed off on an updated Coal Resource and Reserve statement on 2 November 2012 which has been used in the PFS Revision as well as preparing revised mine plans and a study to support the Underground mine.

    Aspire's managing director David Paull said, "I am pleased to be able to report that the PFS Revision has demonstrated that the Ovoot Project is one of the lowest cost potential sources of coal into China which is the world's largest consumer of coking coal and coke.

    The 23% increase in Coal Reserves announced in November 2012 has contributed to the significant increase in the Project Net Present Value and overall cash surplus.

    The company is now well positioned to commence commercialisation negotiations to advance funding and project development."

    Location

    The Ovoot Project is located in northern Mongolia, approximately 160 kilometres west from the Khuvsgul Provincial capital of Moron which lies approximately 400 kilometres west of the nearest rail head at Erdenet.

    Estimated Annual Coking Coal Production

    The production schedule shown is based on a Probable Coal Reserves statement prepared by Xstract as announced on 2 November 2012, with an additional 5 Mt of inferred Coal Resources identified and mined in the Open Pit.

    The PFS Revision now includes a small Underground with a total of 8 Mt being mined over an 11 year period. Total marketable coal produced in the PFS Revision is 184 Mt of quality coking coal.

    The production profile assumes the raising of development finance, grant of outstanding development approvals and access to rail capacity and ports in Mongolia, Russia and China, as well as the completion of Phase 1 of the Northern Railways LLC multi-user railway extending the current railway terminus at Erdenet some 345 kilometres towards the town of Moron by January 2016.

    Production at the higher 10-12 Mtpa assumes the completion of the connecting Ovoot spur line by Aspire by January 2018.

    The average life of mine strip ratio for the Open Pit is 9:1 (BCM:ROM tonne), excluding initial pre-stripping of waste. Open Pit dimensions are now approximately five kilometres long by two kilometres wide.

    The Underground Probable Coal Reserve has been estimated by Xstract from the upper seam only, resulting in a total Underground project life of 11 years at a production rate of up to 0.75 Mtpa.

    Average cost of production over the life of the Underground project is estimated at US$120 per tonne based on an equal split of sales between China, and accessing seaborne markets through Russia.

    Life of mine capital expenditure is estimated at $85 million including contingencies.

    Ovoot coking coal has been classified as a low ash quality blending feedstock for coke manufacture and meets the specification for a fat coking coal classification.

    Further value in use coke oven test work is planned for completion later this year.

    Coal quality analysis and process simulations by Sedgman Limited have shown that a 9.5% ash product with 10.0% moisture can be achieved with high yields.

    Operating Expenditure detail

    The PFS Revision has identified an average ex-mine gate cash cost of US$36 per product tonne of coking coal produced for the life of mine.

    This translates into an FOB cash cost to Russian Far East Port of US$131 per product tonne and US$99 per product tonne FOR cash cost at the Chinese border, both excluding royalties.

    The costs outlined are based on the scheduled life of mine production rate from the Open Pit and Underground mines.

    At full production, cash costs into China, for the first five years average just $91 per product tonne of quality coking coal FOR in China which would represent one of the lowest cost coking coals imported into China.

    Ovoot Capital Expenditure

    The Revised PFS is now based on an owner miner fleet which now adds significant investment required in mine fleet.

    The company has identified an initial capital cost of US$723 million plus contingencies to establish a coal handling plant, a wash plant, all mobile fleet, waste pre-stripping, a coal haulage road and all of the necessary support infrastructure to produce 6 Mtpa of saleable coking coal.

    The coal haulage road forms part of a Multi Modal Transport Corridor linking the Ovoot Project to Phase 1 rail development by Northern Railways.

    A further US$482 million plus contingencies is required to increase the Ovoot Projects' capacity to mine and process up to 14 Mtpa of coal and produce up to 12 Mtpa of product.

    It is anticipated that the Ovoot Project will be able to fund, depending on coal prices received, the expansion from the initial production rate of 6 Mtpa to the full production rate of up to 12 Mtpa, plus all future capital requirements from internal cash flow and project debt.

    Northern Railways Capital Expenditure

    Aspire has established Northern Railways, a Mongolian registered special purpose company with the sole objective being the licensing, funding and construction of a 581 kilometre rail line extending the Trans-Mongolian railway at Erdenet, through to the Ovoot Project

    A Rail Pre-Feasibility study for this railway was completed in March this year and was approved by the Mongolian
    Rail Authority as technically feasible and with a general environmental approval for the rail path chosen.

    Subsequent to the completion of the Rail PFS, an Alternative Southern Alignment running approximately 50 kilometres further south of the alignment identified in the Rail PFS has the potential to be significantly lower in capital and operating expenditure.

    Total rail capex incorporating potential capital cost savings were reported on 30 July 2012.

    Rail Capital expenditure, including additional capital savings in relation to capacity changes is estimated as follows for Phase 1:

    Erdenet to Point A (346 kms) US$710m
    Contingencies US$142m
    Total Rail Capital Including Contingencies US$852m

    The Erdenet to Ovoot rail line will be open access. Other bulk commodity deposits within trucking distance of this rail alignment, provides opportunities for future volume growth.

    Ovoot Has A Relatively Low Capital Intensity

    The Revised PFS includes Phase 2 Rail Capital as part of the Mine Capital development plan to be funded by Aspire.

    It is assumed that Phase 1 will be funded directly by investors into Northern Railways as this portion of the rail line is intended to service a number of existing and potential future customers other than Aspire's Ovoot Project. The Revised PFS assumes that the Ovoot Project pays the standard national per kilometre tariff for this part of the rail task.

    Adding Mine total capex to Phase 2 Rail capex brings the total Ovoot Project capex to US$1.9 bn including contingencies. Based on the very high yield to a quality coking coal product with no thermal fraction, the Ovoot Project continues to be one of the lowest capital intensity undeveloped coking coal projects available.

    Revised PFS: Project Economics

    The Revised PFS with lower overall operating costs incorporating the larger and deeper Open Pit Coal Reserves and Underground mine demonstrates a very large and financially robust coking coal project using a medium term average coking coal price of US$200 per tonne.

    Note that recent market analysis by Wood Mackenzie confirms that incentive prices of more than US$200 per tonne are required in order for supply to adequately respond to forecast demand

    Life of mine totals from the Revised PFS and Underground PFS are as follows:

    Revenue $36.7B
    Operating Costs ($21.1B)
    Operating Surplus before taxes: $15.6B
    Government Royalties: (2.6B)
    Tax (2.7B)
    Operating Surplus after Royalties and Tax: 10.3B
    Life of Mine Capital: (2.0B)
    Net Surplus after tax: 8.3B

    Net Present Value (after tax)
    US$2.2 bn 10% discount rate
    US$1.7 bn 12% discount rate
    US$1.2 bn 15% discount rate

    Analysis

    The PFS Revision has again highlighted the robust nature of the Ovoot Project. To have one of the potentially lowest cost sources of coal into China (Free On Rail costs) for quality coking coal into China, at just $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.

    Based on the very high yield to a quality coking coal product with no thermal fraction, the Ovoot Project continues to be one of the lowest capital intensity undeveloped coking coal projects available.

    Aspire's David Paull can now confidently commence commercialisation negotiations to advance funding and project development for Ovoot with the revised PFS numbers supporting development.

    Project development work. will now focus on:

    - Securing all of the necessary approvals and permits to commence production;

    - Northern Railways completing an update to the Rail PFS for the Alternative Southern Alignment and working towards securing all of the necessary licenses and permits to construct the Erdenet to Ovoot railway;

    - Progressing preliminary marketing discussions with potential coal customers; and

    - Working towards the identification of a Strategic Partner/Partners that can assist Aspire to bring the Ovoot Project into development.

    Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX "Small and Mid-cap" stocks with distribution in Australia, UK, North America and Hong Kong / China.

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