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Aspire Mining' Ovoot Coal Project set to gain from new Mongolian rail policy

Last updated: 20:01 27 Oct 2014 AEDT, First published: 21:01 27 Oct 2014 AEDT

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Aspire Mining’s (ASX:AKM) Ovoot Coking Coal Project may have just been given the key to unlocking the coal riches within, from the Mongolian Government's decision to approve the Erdenet – Ovoot – Arts Suuri Railway as part of its new National Rail Policy.

Shares in the company should trade higher on the news, which should pave the way for a rail solution connecting Ovoot with major international coal markets.

It will also underpin economic development and regional integration of Northern Mongolian Provinces.

Last Friday, the Mongolian Parliament approved the new National Rail Policy by a strong majority.

The new policy includes the extension of rail from Erdenet to Ovoot and on to the Russian border at Arts Suuri.

This represents a new important rail connection between Russia, Mongolia and through the Trans-Mongolian Railway to China.

The Mongolian Government is now empowered to negotiate a Concession Agreement for the railway between Erdenet to Ovoot as the first stage of the Northern Rail Line.

“We are very pleased that the Erdenet – Ovoot – Arts Suuri Rail Line has now been added to Mongolia’s National Rail Policy,” managing director David Paull said.

“The Mongolian Parliament’s decision provides the rail solution to unlock the value of the Ovoot Project.

“We expect that this railway, along with the current expansion of the Trans Mongolian Railway towards 100 million tonnes per annum, will have a dramatic effect on the competitiveness of northern Mongolian coal in both the Chinese and seaborne coking coal markets. 

“In addition, this new railway will bring major economic and social benefits to the Northern Mongolian provinces as economic development and regional integration is fast-tracked.

“Aspire’s dedicated rail subsidiary, Northern Railways LLC, looks forward to the opportunity to provide a tender proposal for the Concession Agreement in the near term.”


Mongolian Rail Policy

The Mongolian Government’s Rail Policy decision follows the recent addition of the Erdenet to Ovoot railway onto the Mongolian Government’s Concession List of ‘”Approved Projects”.

In the medium term, the Erdenet to Ovoot railway is positioned to form a critical link within a highly strategic rail network connecting the Ulug Khem coking coal basin in Russia’s south with the Trans-Mongolian Railway through to China. 

The Ulug Khem coking coal basin is estimated to contain approximately 2.5 billion tonnes of metallurgical coal reserves and when combined with Aspire’s wholly owned Ovoot Coking Coal Project, will represent a major new long term source of high quality coking coal. 

Exports from this very large coal basin in Russia to China are expected to provide substantial transit freight volumes for both the Erdenet to Ovoot railway and the Trans-Mongolian Railway.

In September, Mongolia reached a rail agreement with Russia that included a study into an extension of railway from Erdenet, past Ovoot and linking into the Russian rail system.

This means that the Northern Rail Line is no longer solely dependent on freight volumes from the Ovoot Project alone with potential for Russian transit freight volumes improving its economics.

Mongolia also reached agreements with China that provide Ovoot with more efficient transport across border points; allow negotiations for rail access to a number of Chinese North-Eastern seaports; and potentially access Chinese financing.


Analysis

Shares in Aspire Mining should trade higher on the news that the Mongolian Parliament has approved the Erdenet – Ovoot – Arts Suuri Railway as part of the country’s new National Rail Policy.

This is now a strategically important railway to further enhance Russian and Chinese trade through Mongolia with the railway path passing past Ovoot.  

The policy also affirms the recent rail and trade agreements that Mongolia has reached with Russia and China. It also places the company a step closer towards unlocking the value of its Ovoot Coking Coal Project.

Ovoot has enjoyed strong interest in its coking coal.

Aspire has also entered into an advisory mandate with corporate advisory firm and investment house Argonaut to progress the project.

Proactive Investors continues to maintain a 6 – 9 months share price target of $0.125 per share subject to the Northern Rail Line concession being granted for NRL.

Aspire had $3.5 million in cash as of 30 June 2014.

 

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