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Aspire Mining adds milestones to Erdenet to Ovoot railway

Last updated: 22:43 17 Feb 2015 AEDT, First published: 23:43 17 Feb 2015 AEDT

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Aspire Mining (ASX:AKM) has achieved significant milestones with the receipt of two signoffs from the Mongolian Government necessary to progress rail concession negotiations.
    
This progresses the proposed Erdenet-Ovoot rail line, which is a key requirement to unlock the value of the Ovoot Coking Coal Project and future earnings from mining and production from the project.

The Mongolian Ministry of Environment has approved the General Environmental Impact Assessment (GEIA) while the Science, Technical Advisory Council has agreed to provide in principle support for the proposed alignment path and pre-feasibility studies supporting this alignment.

The GEIA is a high level assessment that shows that the rail path chosen has been assessed and that a Detailed Environmental Impact Assessment can now be prepared.

Northern Railways has also recently received a further batch of 1:5,000 scale maps which form the basis of desk top engineering studies. 

It is now in possession of maps covering a 3 kilometre wide corridor for the first 435 kilometres of the 547 kilometre alignment. The final 112 kilometres of maps are due to be received by Northern Railways by the end of February.    

“Achieving both of these milestones are important in the path along which we are travelling to see the Erdenet – Ovoot railway come to fruition,” managing director David Paull said.

“We are now working closely with our advisers and potential funding partners so that we can put a strong case to the Government of Mongolia for a Concession to be issued to Northern Railways.”


Erdenet-Ovoot rail line


The 547 kilometre Erdenet-Ovoot rail line 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.

Aspire is currently carrying out first stage work, which comprises desk top engineering for the entire alignment in order to provide additional project definition. 

Outputs will include a detailed bill of quantities, detailed construction schedule and a preliminary capital cost estimate. 

Post the granting of a Concession Agreement for the Erdenet – Ovoot railway, and given funding is in place, Northern Railways will look to commit to the balance of the Bankable Feasibility Study. 

The total cost to Northern Railways will be US$6.5 million (+ VAT) for both the First Stage and the Final Bankable Feasibility Study.

China Railways Construction Corporation, which is carrying out the first stage work, has significant engineering and construction capabilities working on major projects including roads, highway, light and heavy rail, bridges, tunnels, housing and other projects both domestically in China and internationally.

Its China Railway 20 Bureau Group Corporation subsidiary employs over 20,000 personnel and has significant international experience completing recent rail projects in Angola, Mongolia and Mozambique.

Adding to the interest, Noble Group - Asia’s largest diversified commodities trading company - retains an option to acquire 10% of Northern Railways and fund 10% of the rail development capital


EPC Framework Agreement

In November 2014, Aspire reached a Framework Agreement with CR20G covering completion of engineering work over the Erdenet – Ovoot section of the Northern Rail Line.
    
It also provides a basis for negotiations between Northern Railways and CR20G for the award of a fixed price, lump sum turnkey EPC Contract upon the satisfaction of certain conditions.

In addition, CR20G will assist Northern Railways in sourcing project financing from Chinese and other financiers.


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.

It has also signed a non-binding MoU to sell up to 250,000 tonnes of oxidised coal per annum to Zavkhan Power Station about 70 kilometres south of Ovoot.

This provides a potential revenue stream from a product that would otherwise have been considered a waste material.

The MoU includes the construction of transmission infrastructure that will allow the supply of 35 megawatts of power per year to Ovoot.

A recent study demonstrated that a blend of Ovoot coking coal with other selected Mongolian thermal and non-coking coals is ranked as a premium coking coal using Chinese coal classifications.

This is considered to be similar or even better than primary coking coals imported from Australia, the U.S., and Canada due to its medium ash, low sulphur and high G value.

The supply gap for primary coking coals in China is expected to peak at 83 million tonnes by 2020.


Analysis

Aspire Mining has taken key steps towards securing a Concession for the Erdenet-Ovoot railway that is a key requirement for unlocking the value of the Ovoot Coking Coal Project and future earnings from mining and production from the project.

Progress also continues to be made on the desk top engineering studies with company now in possession of 1:5,000 scale maps covering a 3 kilometre wide corridor for the first 435 kilometres of the 547 kilometre alignment.

News flow ahead includes progress in discussions with potential funding partners as well as further advances towards securing the Rail Concession.



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