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Aspire Mining MD David Paull in Q&A with Proactive Investors

Published: 06:30 16 Jul 2015 AEST

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Aspire Mining (ASX:AKM), currently a junior explorer with assets in Mongolia, is on the cusp of being the beneficiary of game-changing planned infrastructure investment between Asia and Europe.

Aspire's assets are truly world-class, and with increasing developments in Mongolia’s infrastructure space, could soon become a production reality through the construction of rail servicing its planned mine sites.

Aspire has partnered with major commodity trader, Noble Group, with the view to see near term production at the smaller Nuurstei Project.

Aspire also wholly-owns the Ovoot Project, which boasts the country's second largest coking coal Reserve with long mine life, and on top of that, displays excellent blend carrying characteristics and coking coal properties including a high rank, mid-volatiles and low ash.

This is the company's differentiating factor.

Ovoot coal is capable of upgrading thermal, oxidised and low quality coking coals to saleable coking coal, and therefore Ovoot product will be in high demand, once the infrastructure solution is achieved.

David Paull, managing director of Aspire Mining, speaks exclusively with Proactive Investors Australia.


PROACTIVE INVESTORS: Welcome David.


What would a Sino-Russo-Mongolian Trade Co-operation mean for a shared vision for a new “Silk Road” economic corridor, and how would Aspire Mining be poised to benefit?

   
David Paull: It’s not widely reported in Australia and other Western Countries but the New Silk Road and Eurasian Land Bridge concept is fast gaining a lot of attention and traction, particularly in Europe and China as a means to facilitate increased levels of land-based trade from China to Europe and vice versa.

One of the most direct routes is transiting Mongolia.

The project is being heavily promoted by China which was first introduced in 2013. Following that, Mongolia-Russia-China entered into tripartite agreements covering infrastructure upgrades and considerably larger trade targets, as well as the ability for Mongolian companies to access rail and seaport facilities in China.

These tripartite agreements were further enhanced only last week in Russia during the BRICS and Shanghai Cooperation Organisation (SCO) summits. During these meetings Mongolia-Russia-China signed a further Memorandum which compiled a guideline for building the trilateral Economic Corridor.

In addition, framework agreements were also signed covering the facilitation of international trade along this Economic Corridor and on cooperation for ports of entry between the three nations. What we have now is a shared vision for the New Silk Road, which integrates Chinese and Russian rail plans with Mongolian Rail Policy.

Our Ovoot project is located directly alongside a rail line that forms part of the Mongolian Rail Policy, which creates a connection extending from Erdenet to Ovoot and further up to the town of Kyzyl in Russia.

Financing of major rail and seaborne route upgrades are already underway. On 29 June 2015 Asian Infrastructure Investment Bank (AIIB) was formally opened with initial subscribed capital of ~US$50bn and total authorised capital of US$100 bn.

Fifty countries are founding members of AIIB and include China, Russia, Mongolia, Singapore, UK, Germany, France, Australia and others.

China have also already implemented a Silk Road Fund to total US$40 bn. Already US$10bn capital has been injected by China’s own FX reserves and institutions and on 25 June, Bank of China raised the first $3.5 bn through a bond issue which will be used towards Silk Road Projects.

In addition, a US$16bn Silk Road Gold Fund has been established to finance mining projects and metal stockpiles that are located along the Silk Road.

Aspire will look to access these specific funding sources.

What this means for companies such as Aspire is a significant influx of money and infrastructure development into emerging economies, such as Mongolia that form part of the macro plan to facilitate increased international trade and regional growth.


With Aspire Mining's world-class coking coal assets sitting on potentially what could become an international rail corridor, how can the company contribute to a decision to build this infrastructure?
   
David Paull: The Erdenet – Ovoot railway is just one section of the entire Mongolian national rail policy. It is part of a longer link from Erdenet to the Russian border which when extended on the Russian side, would eventually connect up to the Trans-Siberian railway in Russia.

As mentioned earlier, these international rail connections are being supported by the Silk Road tripartite agreements.

To attract the investment however required to finance the construction of rail infrastructure requires the railway to work financially from an operational viewpoint.

For the Erdenet – Ovoot railway, the size and scale of our Ovoot Project would provide the necessary initial freight to make the railway economic and get the project started.

Once built, there are multiple other Mongolian resource projects in the area that would also be provided with a path to market, not to mention use of the railway by local agricultural and manufacturing industries and passenger freight, and in time potentially Russian and/or Chinese transit freight.

Aspire has spent US$10m on studies defining the alignment and cost of the Erdenet – Ovoot section of this new potential international rail corridor.

Aspire is currently in negotiations with the Mongolian Government looking to agree a  Rail Concession Agreement that will assist in securing funding to construct this railway.

What’s more, in cooperation with UBTZ the company has commenced a Scoping Study for the rail connection from Ovoot – Arts Suuri and from Arts Suuri – Kyzyl. This will better define that alignment and the potential cost to connect the Erdenet to Ovoot railway to the Russian Rail system.

Once the new rail connection is made between Mongolia and Russia it will provide an efficient new rail capacity for rail freight between Asia and Europe.


Can you outline the next key information pieces investors should look out for in regards to the advancement of a decision to build this infrastructure?

   
David Paull: With respect to the Erdenet – Ovoot railway, our Mongolian rail infrastructure subsidiary (Northern Railways LLC) is currently in negotiations with the Mongolian Government for the ability to build, own and operate the Erdenet – Ovoot railway via the grant of a concession.

Northern Railways has received non-binding interest to finance the entire US$1.2bn capital required, and not surprisingly a large amount of this has come from a number of large Chinese financial institutions.

These institutions have completed preliminary due diligence, and we are waiting for the receipt of the concession before definitive discussions can be held.

Northern Railways have agreed an EPC framework agreement with a subsidiary of China Railways Corporation who are keen to construct the Erdenet – Ovoot railway.

We have also included China Railways 20 Bureau Group (CR20G) and its sister company, the China Railways First Design Survey and Design Group (FSDI) along with ourselves in a consortium to support Northern Railways to be granted the rail concession.

Although we are a junior company, we really are on the cusp of major regional infrastructure development which is why there is so much interest in the Erdenet – Ovoot railway.

Specific announcements to look out for will include the execution of a Concession Agreement with the Mongolian Government, commencement and progress of subsequent definitive financing discussions, the completion of the rail bankable feasibility study, receipt of permits & other licences, and the EPC contract finalisation.


Looking forward, if the infrastructure plans go ahead in Mongolia, which end user markets would Aspire Mining be looking to tap in to?


David Paull: Given its proximity to the world’s largest user of coking coal, a majority of Aspire’s future production will be sold into China.

For Ovoot coking coal, we have already signed Chinese interest for offtake under non-binding MOU’s for up to 6.1mtpa.

We have also had some interest from Russian users as well, and offtake interest has been signed under non-binding MOU’s for up to 1.3mtpa. We’ve also received interest from Eastern Europe’s foundry industry.

Australia currently ranks as the top source for China’s imports of hard coking coal, with Mongolia its second main source.

With the planned rail infrastructure development however, Mongolian coal deliveries into China will become significantly more competitive as the delivery costs will be significantly cheaper than its seaborne competitors.


Aspire is heavily supported by Noble Group and China Railways, can you explain how they are helping you to develop the Erdenet – Ovoot Rail Project?

David Paull: Noble have assisted financially in supporting the pre-development activities of the Erdenet – Ovoot railway and will own a 10% interest in Northern Railways on the grant of a concession.

They also have an incentivised option to fund 10% of the Erdenet – Ovoot railway capital requirement of US$1.2bn. Aspire have provided Noble approximately 40% marketing rights of Ovoot coking coal and 100% of marketing rights for Nuurstei coking coal.

Noble Group is listed on the Singapore Stock Exchange and manages the global supply chain of agricultural and energy products, metals and minerals.

Noble has significant experience operating from over 140 locations, employing more than 70 nationalities and managing a diversified portfolio of essential raw materials, and integrating the sourcing, marketing, processing, financing and transportation of those materials.

Aspire has been working with China Railways 20 Bureau Group (CR20G) and its sister company, the China Railways First Design Survey and Design Group (FSDI) since mid-2013.

CR20G is a wholly owned subsidiary of China Railways Corporation, a Fortune-500 company and one of the world’s largest international rail engineering construction firms which has worked on major projects both domestically in China and internationally.

CR20G employs over 20,000 personnel and has significant international experience completing recent rail projects in Angola, Mongolia and Mozambique.

That long association and partnership with CR20G and FSDI culminated in May this year with the signing of a consortium agreement between the parties which provided Northern Railways with the exclusive support of China’s largest rail construction company.

As part of this support CR20G has provided Northern Railways an exclusive licence to use proprietary construction technology applicable for building rail in the harsh climates of northern Mongolia.

What’s more, CR20G has been acting as Northern Railways sponsor in sourcing funding from Chinese financial institutions.

As a junior company, we really appreciate having some heavyweight support from these two partners.


What is the key information that Investors should look out for in the near term?


David Paull: Other than the rail progress we are looking to achieve, we also plan to commence Nuurstei’s 2015 exploration program this month.

This work is particularly exciting because it builds on the success of the 2014 program which identified an Exploration Target of between 15Mt – 25Mt.

Further coal quality testwork will also be completed to confirm the quality across the entire deposit.

Positive results from this program will assist us and Noble to make a development decision for Nuurstei next year.

Aspire have also recently been granted new exploration ground in Western Mongolia at a project called Myngan, as well as new licences in south Mongolia granted to the ECJV.

We will complete some preliminary work on these licences as well over the next 12 months to assess their prospectivity for coking coal.

In June we successfully completed a $4.4m capital raising to ensure that we have sufficient funds to complete the rail negotiations and planned exploration activities.


Ovoot has a forecast production date of 2019, where would this potential timeline fit in regards to forecasts for the coking coal price?

   
David Paull: Although the coking coal market today looks bleak with a benchmark pricing of around US$93/t (September 2015), consensus forward pricing estimates indicate that we should see slight improvements in coking coal prices starting in 2016.

By 2019, forecasts are that the consensus seaborne coking coal price will be higher, around US$150/t, which fits in well with bringing Ovoot production online, providing that the Erdenet – Ovoot railway is built and commissioned by this time.


Finally, why should investors consider adding Aspire Mining to their portfolio?

   
David Paull: We’re an emerging market, metallurgical coal explorer/developer focussed on world class coking coal assets in Mongolia.

This is a country that is uniquely positioned to benefit from the Chinese driven policy initiatives to improve economic cooperation between China and Europe.

Aspire’s assets are strategically located directly along the path of these planned infrastructure initiatives and is therefore a very unique story within the context of the junior ASX market which provides shareholders with leveraged exposure to these globally significant trade developments.


PROACTIVE INVESTORS: Thank-you David.


Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX emerging companies with distribution in Australia, UK, North America and Hong Kong / China.

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