Aspire Mining (ASX: AKM) has received a report identifying potential capital expenditure savings for the Northern Railways Erdenet to Ovoot rail project that is key to commercialising its Ovoot Coking Coal Project in Mongolia.
The report also confirmed the project is viable from an engineering and railway operational aspect.
"This study further confirms the Northern Railways Erdenet to Ovoot rail project as a viable and efficient solution to bring Ovoot coking coal, and other resource and agricultural products from northern Mongolia to world markets," managing director David Paull said.
"The company continues to engage with the Government of Mongolia in its evaluation of the benefits of this rail project to the country."
The field inspection into the entire rail alignment by SMEC International was designed to confirm a number of key assumptions used in the Rail Pre-Feasibility Study Revision (RPFSR) that SMEC had prepared for Aspire.
It focused on the constructability of the alignment from the point of view of construction logistics, geotechnical, hydrology, environmental, river crossings, and railway operations.
Key takeaways from the field investigation include:
- The logging of 14 potential quarry sites for ballast across the 547 kilometre alignment. The spacing of these potential quarry sites is such that distances from the rail line are no more than 30 kilometres;
- The RPFSR included an allowance to engineer a protection against the impacts of permafrost on the formation. Field investigations have confirmed that the length of alignment potentially impacted by permafrost conditions is 139 kilometres which is substantially less than the 200 kilometres assumed in the RPFSR. No frozen ground conditions were encountered during the field visit.
- The field visit identified 12 locations where changing the alignment slightly should result in the reduction of three large bridge structures, reduce the length of a number of large bridges, avoiding swampy ground and route around a congested industrial zone of Erdenet city where the Northern Rail Line will connect and rail yards will need to be constructed.
During the field investigation the SMEC team "encountered nothing that would prevent the railway from being built, nor anything that would add significantly to the estimated cost".
It noted that some minor changes to the alignment would eliminate major river crossings and the associated bridges.
It was also noted that "permafrost, while still a potential hazard, appears to be receding and will probably prove to be not as significant an issue as anticipated and budgeted for."
In the overall conclusions to the field investigation it was noted that "the field inspection confirmed that the project is viable from anengineering and railway operational aspect, within the general budget guidelines as developed and contained in the PFS Report (RPFSR)".
Rail Pre-Feasibility Study Revision
The RPFSR released on 10 April 2013 had identified a lower US$1.3 billion capital expenditure for the Northern Rail Line - US$200 million savings - as well as reductions in operating costs.
This was achieved by taking a more direct route further to the south for the proposed rail line from the Ovoot coal project to Erdenet, Mongolia's second largest city.
Taking the southern route would also allow the company to take advantage of widespread sources of ballast, which has been confirmed by the field investigation, and potentially provide rail access to Zavkhan province to the south.
Ovoot Coking Coal Project
Aspire has progressed the Ovoot Coking Coal Project in recent months with:
- Signing port access agreements to penetrate the lucrative European markets and expanding its access to North Asian markets;
- Identifying a low capital development for the project by using contractors wherever possible for a 5 million tonne per annum initial project, reducing initial capital costs to US$144 million from the original US$459 million for a 6Mtpa Stage 1 plan;
- Financing support with the receipt of non-binding letters of intent from Deutsche Bank and BHF Bank to provide US$40 million and US$50 million respectively in Export Credit Agency backed loans;
- A US$20 billion working capital facility made available to the company from Noble Group;
- Interest from potential customers to acquire Ovoot Project coking coal; and
- Studies confirming Ovoot Coking Coal has superior blend carrying capacity and can be blended with coal from the Government owned Tavan Tolgoi mine in southern Mongolia to upgrade the latter's coking coal properties.
Ovoot has a Probable Ore Reserve of 255 million tonnes Run of Mine. It has Open Pit Resources of 253.1 million tonnes and underground resources of 27.9Mt.
Aspire has a 100% interest in the Ovoot Coking Coal Project in northern Mongolia.
Confirmation that the Northern Railways Erdenet to Ovoot rail project is viable from both an engineering as well as railway operational aspect along with further potential cost savings lends further support to the potential for Aspire Mining's Ovoot Coking Coal Project to be one of the lowest cost producers of coal into China.
The key point is the potential to further reduce the capital cost, which will lend further support towards infrastructure investment.
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