Aspire Mining Ltd (ASX:AKM) is on a path to early production of high-quality ‘fat’ coking coal from the world-class Ovoot project in northern Mongolia after receiving robust financial outcomes from a pre-feasibility study (PFS).
The company said that the Ovoot Early Development Project (OEDP) PFS completed by it and lead PFS consultants FMS LLC confirmed a compelling strategy to unlock value from a base case starter pit.
This project involves mining relatively low ash, low strip ratio and high yielding ‘fat’ coking coal from a starter pit that sits within the existing 255 million tonnes Ovoot JORC-compliant ore reserve.
Aspire’s executive chairman David Paull said the OEDP was set to transform Aspire into a significant long-term coking coal producer.
He said the OEDP pit would only mine 15% of the Ovoot project reserves, while the company awaited a rail connection to facilitate mining the remainder.
Further potential upside would come from the full rail development or further extensions to the OEDP open pit.
Investors have responded positively with shares up 32% to 2.5 cents in early trading.
A definitive feasibility study (DFS), which is fully funded, is underway and is expected to be completed during the September 2019 quarter.
Paull said that quality undeveloped coking coal projects in the world were rare and sought after.
“This was demonstrated by [this week’s] $600 million cash takeover bid by Hancock Prospecting Pty Ltd for Riversdale Resources Ltd, a coking coal mine developer in Canada.
“This is an exciting development for the company which is well supported by our two major shareholders Mr Tserenpuntsag and Noble Group.”
36.8 million tonne starter pit
The Base Case OEDP starter pit utilises a 36.8 million tonne ore reserve carve out from the Ovoot project reserves and supports an initial 9.2-year mine life whilst development of the planned Erdenet to Ovoot Rail connection continues in parallel.
Washed coal will then be delivered via a 560-kilometre special purpose haul road that will be constructed to connect to a railhead at Erdenet.
The coal will then be delivered on the Mongolian rail network that has confirmed available capacity for OEDP coal to the Mongolian/China border crossing of Erlian to Chinese end customers.
The OEDP Base Case will transform Aspire into a significant pure-play coking coal producer positioned in the second quartile of the global cost curve.
Among the results are:
- Outstanding Base Case economics with unleveraged NPV10 (pre-tax) of US$586 million with an IRR of 43.7% (inclusive of mine, logistics, waste pre-stripping and haul road capex).
- Attractive average LOM net direct C1 Cost of US$81/tonne delivered to the China border at Erlian which will position Aspire as a second quartile producer on the global cost curve.
- Average annual EBITDA of US$172 million and rapid 24 months payback from commercial production with life of mine EBITDA of US$1.6 billion.
Paull said: “The PFS confirms the 100%-owned Ovoot Coking Coal Project is one of the most attractive coking coal development projects globally in terms of high investment returns, low capital intensity and quality of product that is located on the doorstep of the major consumer, China.
“The Board and the company’s major shareholders are committed to advancing the OEDP to first production as quickly as possible.”
The extended case
The OEDP Extended Case involving a further cutback of the OEDP pit highlights the attractive economics associated with a longer life continuation of the OEDP.
This scenario delivers:
- Increased mine life (at 4.0 million tonnes/annum) to 12.5 years.
- An unleveraged NPV10 (pre-tax) of US$758 million with an IRR of 44.5% (inclusive of mine, logistics, waste pre-stripping and haul road capex).
- Potential to extend mine life further through future cutbacks with additional mine planning.
Aspire considers the strong forecast cashflow from the OEDP will be complementary to achieving a much larger production profile based on the future rail connection.
A medium-term large-scale, rail-based production project remains the company’s optimal outcome.
If this does not occur, the OEDP PFS confirms globally significant coking coal production can be rapidly achieved in a low capital intensity manner to unlock attractive economics that are not rail dependent.
Aspire considers the OEDP could feasibly be extended into a multi-decade haul road-based operation upon completing additional studies should a rail connection ultimately not occur.
The financing process is progressing with strong ongoing support from major shareholders Mr Tserenpuntsag and Noble Group.
Strong preliminary interest has been received from a range of specialist financiers to provide debt funding for the mine, wash plant and/or road.