Aspire Mining (ASX: AKM) has completed a Rail Pre-Feasibility Study Revision confirming that it could save US$200 million by taking a more direct route further to the south for its proposed Erdenet to Ovoot rail extension in Mongolia.
This reduces capital expenditure for the rail line to US$1.3 billion.
Importantly, further capital expenditure cost savings are possible from a de-rating of haulage capacity from 22 million tonnes per annum to an initial starting capacity of between 10Mtpa and 12Mtpa.
This reflects the Ovoot coal mine and nearby smaller mine requirements. Capacity increases can then be made as additional freight commitments arise
Optimisation of the eastern half of the alignment could also result in additional cost savings.
The revision has been updated for 2013 cost allowances at a significantly higher level of auditable detail cost levels though it remains at a Pre-Feasibility Study level with +\- 15% variance.
Potential operating costs savings of $50 million per annum have also been identified.
This is due to the redefining of the rail path, shorter total kilometres along more agreeable terrain and the modelling of longer trains has resulted in a 30% reduction in the per kilometre rail operating cost.
Global benchmarks were also amended for Mongolian standards, policies and customs.
Aspire added the cost revisions shown do not include the Moron rail spur. This would be an access spur line which would be funded by other parties.
Capital Expenditure Estimates
The Rail Pre-Feasibility Study Revision was undertaken by Snowy Mountain Engineering Corporation after remodeling of the February 2012 Rail PFS alignment indicated that a more direct route further to the south saved both initial capital expenditures and ongoing annual operating expenditures.
A route farther to the south than indicated in the July 2012 Calibre Review was identified and selected as it is cheaper in terms of capital and operating expenditure and has less risk from an environmental, geotechnical and hydrological perspective.
It also confirmed the seismic risk as being tolerable and manageable under normal design standards along with the widespread existence of nearby sources of ballast along the alignment path.
No areas of unmanageable geotechnical risk have been found along the designated alignment at
desk top level.
A further advantage of the new southern alignment is that it crosses into Zavkhan province to the south, potentially providing rail access to this province.
The southern alignment is now more than 120 kilometres south of the Khuvsgul defined tourism zone and 220 kilometres to the south of Lake Khuvsgul.
Aspire's subsidiary, Northern Railways LLC has incorporated the above savings into economic analyses of the Ovoot - Erdenet railway and can now demonstrate an attractive economic return to rail investors across a range of reasonable capacity charges and minimum committed volumes.
Aspire will continue to work on advancing the Erdenet to Ovoot railway by providing more engineering definition and progress towards a Bankable Feasibility Study.
When the definition is at a suitable stage the company will start the process to seek a rail concession and the other supporting permits and approvals required from the Government of Mongolia.
This will benefit from the Government's recognition that more economic growth and infrastructure investment is needed in northern Mongolia and in particular Khuvsgul Province.
Initial pilot coke tests have confirmed that mammoth Ovoot project in Mongolia contains high quality blending coking coal.
This has extremely high vitrinite content, which provides the coal with high fluidity and plastic properties and one of the highest Gray King Coke types available in the market.
This attribute indicates a superior blend carrying capacity and when combined with its relatively high rank it means coke producers can use the Ovoot product in blends with hard coking coal and weak caking coals to produce quality coke.
The capital savings from the Rail Pre-Feasibility Study lend further support to the Pre-Feasibility Study released in December 2012 that showed the Ovoot Coking Coal Project in Mongolia could become one of the lowest cost producers of coal into China.
While further works remains to be done, the cost savings from the rail line lend further support towards infrastructure investment.
Preparation to commence Rail Bankable Feasibility Study is now underway.
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