Aspire Mining (ASX:AKM) has raised a very handy $4.4 million through its prospectus priced at $0.02 to further explore its Nuurstei and Ovoot coking coal projects in Mongolia.
It demonstrates the perceived quality of projects held by Aspire and also a shift in sentiment back toward metallurgical coal companies as investors look to snap up bargain basement pricing.
Proceeds will also be used for technical studies and negotiation for rail related agreements for Northern Railways LLC.
The raising comprised a placement of up to $4 million with a priority allocation of a further $2 million for existing shareholders.
It includes one free attaching option exercisable at $0.03 with a two year term for every two shares subscribed.
"The company is encouraged by the strong support shown from existing and new shareholders," managing director David Paull said.
"It's relevant to note that there has been a shift in sentiment towards companies in the metallurgical coal space with a broad recognition that we are at the bottom for this market in terms of pricing with the industry actively moving to rebalance supply and demand.
"A number of metallurgical coal companies have also been able to raise capital notwithstanding it is still a difficult market.
"Recently the Shareholders Agreement between Rio Tinto and the Mongolian Government concerning the Stage 2 development of the Oyu Tolgoi Copper\Gold Project was announced, which is an important watershed event for future foreign direct investment in Mongolia.
"The Government has also made a number of decisions over the last 12 months to further encourage foreign investment.
"The Company looks forward to commencing its exploration program at Nuurstei for 2015 and continuing to make good progress on the development of rail infrastructure in Northern Mongolia which will benefit both of the Company's Ovoot and Nuurstei Coking Coal Projects."
In May, Aspire received a formal invitation to commence negotiations with the Mongolian Government's multi departmental Working Group for a Rail Concession.
The working group comprises representatives from the Ministries of Roads and Transportation, Environment, Finance and Investment Agency.
It has also entered into a Consortium Agreement with China Railways 20 Bureau Group Corporation who will provide its subsidiary Northern Railways with exclusive rights to technology required to construct the Erdenet to Ovoot Railway.
CR20G is a wholly owned subsidiary of China Railways Construction Corporation (HKEx:1186) (XSHG;601186), a Fortune-500 company (US$42.0 billion market cap.) and one of the world's largest international rail engineering construction firms.
Ovoot Coking Coal
The Ovoot Coking Coal Project in northwestern Mongolia has a JORC Resource of 255 million tonnes and is the country's second largest coking coal reserve behind the government-owned Tavan Tolgoi project.
Initial production is estimated to commence in 2018, producing 5 million tonnes per annum of saleable coking coal and increasing in subsequent years to achieve full scale production of up to 10Mtpa from both the open pit and underground operations.
Capital costs to achieve initial production is estimated at US$144 million with operating costs of between US$76 and US$86 per tonnes Free-On Rail at the Chinese border for the first two years of operation, and between US$82 and US S$92/t over the first five years.
Current offtake interest in Ovoot coking coal exceeds targeted production with MoUs signed for up to 7.4 million tonnes per annum, or 148% of planned initial production.
Aspire has a 30 year mining licence covering the existing project area and is the largest licence holder in Selenge Basin - the largest of Mongolia's coking coal basins.
Nuurstei Coking Coal Project
The Nuurstei project is being developed by the 50% owned Ekhgoviin Chuluu Joint Venture with Noble Group. ECJV has a 90% interest in the project.
It is located just 10 kilometres from Khuvsgul province capital of Moron and within close proximity of a newly completed sealed road that will allow for the transport of Nuurstei coal to existing rail services at Erdenet.
It would also be an early user of rail along the planned Erdenet-Ovoot-Arts Suuri Railway being promoted by Aspire's rail subsidiary Northern Railways LLC.
An exploration target of between 15 million and 25 million tonnes has been established for Nuurstei licence 13580X.
Core drilling and coal quality testwork will be carried out as part of the 2015 exploration program.
Erdenet-Ovoot rail line
The 547 kilometre Erdenet-Ovoot rail line represents the first phase of the Mongolian Government's planned Northern Rail Line, which will extend existing railway from the town of Erdenet through to the Ovoot project and onto the Russian border at Arts Suuri.
It is a key requirement to unlock the value of the Ovoot Coking Coal Project and future earnings from mining and production from the project for Aspire.
This connects the large coking coal basin to China and international markets.
In accordance with Mongolian National Rail Policy, the Erdenet - Ovoot Railway will be a multi-user rail line available for the transport of bulk materials, agricultural and general freight and passengers from the region to export markets including China, Russia and seaborne markets.
Northern Railways had previously entered into an Agreement with China Railways 20 Bureau Group Corporation to complete a Bankable Feasibility Study.
The Rail BFS has been split into two phases, with the first phase comprising desktop engineering work to provide additional project definition and has commenced following Northern Railways initial payment of US$250,000 and the provision of 1:5,000 scale mapping over the entire 547 kilometres alignment.
The total cost for the Rail BFS is US$6.5 million plus value added tax. Further payments, and the commencement of the second phase are conditional upon Northern Railways receiving the grant of a Rail Concession, and Northern Railways accessing funding to complete the study.
Raising $4.4 million is noteworthy given current difficult markets and provides the platform for Aspire to spring into further exploration at Nuurstei and progress development of its proposed rail infrastructure.
This along with other raisings by other metallurgical coal companies may signal the bottom of the pricing model.
Foreign investment in Mongolian projects recently received a boost from the Shareholders Agreement between Rio Tinto and the Mongolian Government concerning the Stage 2 development of the Oyu Tolgoi Copper\Gold Project.
Adding further interest, China's trends towards the use of larger blast furnaces to achieve higher productivity to balance environmental concerns is expected to drive demand for high quality coking coals.
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