The concept of using contractors wherever possible for a 5 million tonne per annum initial project has reduced initial capital requirements to US$144 million from the original US$459 million for the original 6Mtpa Stage 1 plan.
Financing has also received 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 to fund the wash plants and associated site works and engineering.
In addition, the Noble Group has confirmed that a US$20 million working capital facility announced on 10 January would be made available to Aspire to support the Ovoot Project Development and Funding Plan (NYSE:ODP). Other potential sources of funding have also been identified.
The company added the new ODP and funding options removed a significant area of funding risk for Northern Railways and its proposed Erdenet to Ovoot Railway.
"The ODP is an appropriate response to find a capital efficient path to development," Aspire managing director David Paull said.
"This lower capital spend when combined with the potential sources of capital identified to fund the ODP removes mine financing risk and will provide confidence to future investors in Northern Railways that the Ovoot mine will be operational when required."
Operating costs excluding royalties for the first three years of operation are expected to be between US$83 per tonne to US$93/t FOR (Fixed on Rail) China border depending on rail tariffs to be negotiated and US$72/t FOR Russian border, based on internal company calculations.
Commencement of the initial 5Mtpa operation is expected to coincide with commissioning of railway from Erdenet to the Ovoot Project in 2017. Further production increases will be internally funded from cashflow.
Ovoot Project Development and Funding Plan
Aspire's ODP reduces capital expenditure to US$144 million through its reliance on a number of factors.
- The extensive use of contractors to supply mining, camp, aviation and communication services;
- The construction of railway from Erdenet to the Ovoot Coking Coal Project mine site in one phase with completion in 2017. This alleviates the need to build a sealed coal haul road and reduces the capital expenditure estimate by $98 million;
- Use of "off-the-shelf" modular washplants. Production of 5Mtpa is achievable from these plants when combined with the forecast availability of by-pass coal (coal that does not need to be washed) in the early years. Additional capital investment in wash plant capacity and on site materials handling capabilities will still need to be made to lift production to as much as 12Mtpa as the market requires; and
- The Coal Resource remodelling conducted by the Company in 2013, the results of which were included in the recent Coal Reserves and Resource announcement, which identified an area of low ash coal that can provide a significant amount of by-pass coal in the early years that reduces the coal washing capacity otherwise needed.
Key assumptions used to achieve the first year target of 5Mtpa of marketable coking coal are:
- In the eight months prior to commencement of first year production, a 20 million BCM waste removal program to pre-strip overburden to top of coal;
- A strip ratio of 7.8:1 (BCM waste: tonne of coal);
- Preferentially targeting the Upper Seam with a relatively high proportion of low ash coal;
- Mining of 5.5Mt of coal (at a 2% moisture on an as received basis) producing 5Mt of saleable coal. This is made up of 40% of washed coal and 60% of by-pass coal meeting a 13% ash cutoff;
- Higher ash coal totalling 2.2Mt will be washed in a 300 tonne per hour wash plant to be constructed at the Ovoot Project;
- Overall product yield of 90% to be achieved averaging 9% moisture for a less than 10% ash product; and
- The mine design is that used to support the recently announced Coal Resource and Reserve update for the Ovoot Project.
Development of the Ovoot Project based on the ODP will take about 12 months and would be timed to meet the commissioning of the Erdenet to Ovoot Railway in 2017.
The Erdenet to Ovoot Railway is being progressed by Aspire's wholly owned subsidiary Northern Railways LLC.
Aspire had recently noted interest from potential customers to acquire Ovoot Project coking coal and had signed non-binding Memoranda of Understanding for coal sales for up to 5.6Mtpa, with significant additional interest from Russian, Chinese and Japanese customers.
Along with the lower capital requirements, the company has also received non-binding letters of intent to negotiate Export Credit Agency supported loans for washplants and other site capital from Deutsche Bank and BHF Bank for US$40 million and US$50 million respectively while confirming support from strategic shareholder Noble Group.
In addition, the Company is in preliminary discussions with two large international mining contractors regarding a five year mining contract for a currently scheduled movement of 368 million BCM of coal and waste.
The inclusion of 20 million BCM of pre-stripping of waste prior to production commencing and mobile fleet mobilisation costs would be capitalised then amortised per tonne of coal mined across the balance of the five year contract. This contract would provide up to US$60 million of the funding.
Additional funding sources may also be found from the potential coal customer base through a mechanism of coal presales for a relatively small proportion of annual production.
Ovoot Coking Coal
Aspire had in July delivered a coal resource and reserve upgrade for the project, increasing Open Pit coal resources by 10.3% to 253.1 million tonnes. Underground coal resources remain unchanged at 27.9 million tonnes.
This brings the total coal resources for the project to 281 million tonnes, with 197 million tonnes Measured, 72.3 million tonnes Indicated and 11.8 million tonnes Inferred.
Ovoot's probable coal reserve tonnes increased by 34 million tonnes to 255 million tonnes ROM, at a total moisture of 2% while the probable marketable coal reserve increased by 8 million tonnes to 188 million tonnes, at a product moisture of 9.5%.
Studies also found that coking coal from Ovoot had superior blend carrying capacity and could be blended with coal from the Government owned Tavan Tolgoi mine in southern Mongolia to upgrade the latter's coking coal properties.
Aspire has a 100% interest in the Ovoot Coking Coal Project in northern Mongolia.
With lower capital requirements and financing options in place, Aspire Mining has significantly de-risked its Ovoot Coking Coal Project.
Taken together with the recent resource upgrades, the probability of using its coal to upgrade non-coking coals from Tavan Tolgoi as well as non-binding MoUs for coal sales, the company has a clearly defined route to develop the project.
Today's new funding plan provides a path to development for Ovoot that is likely to find faster favour from financiers given the smaller, "bite" size capital spend required. The LoI's already signed with Deutsche Bank and BHF Bank and that "other potential sources of funding have been identified" by Aspire indicates the support. While the new plan is value accretive for Aspire in the short term, we would expect that medium term there is substantive upside from current market cap. of $38 million for Aspire.
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