Aspire Mining Ltd (ASX:AKM)(FRA:WKU) is the only ASX-listed company to have coking coal assets in Mongolia and could be well-placed to benefit from recent speculation that China is shifting away from Australian coal.
The company owns the world-class Ovoot Coking Coal Project, and while rumours around the Chinese sentiment focus on thermal coal, the company experienced a sharp share price bump last week as investors anticipated a complete coal ban.
Last Monday, the company sat at around 7.2 cents per share and after Chinese State Media alluded to restrictions on Australian coal and a refocus to prioritise imports from Mongolia, Russia and Indonesia, the share price doubled before levelling out at around 8.6 cents.
China recently introduced tariffs on Australian goods including wine, barley and beef and the unofficial coal ban has only increased tensions between the two countries.
Coal market in Mongolia
Mongolian coking coal export volumes to China have been recovering from a border shutdown between the two countries earlier in the year.
For the six months ended June 2020, China imported 7.2 million tonnes of coking coal from Mongolia (a 56% decline from the prior year) while imports from Australia rose 65% year-on-year to 24 million tonnes.
However, for the balance of the second half of the year Mongolian coking coal exports are expected to revert to more normalised levels while Australian exports to China slow.
In September 2020 Mongolia exported 3.9 million tonnes to China, which represented 58% of China’s coking coal exports.
In contrast, Australia exported just 2 million tonnes to China that month.
The first news of curtailments to Australian coal imports was reported in October, placing Aspire in the perfect position to benefit from any increase in Mongolian exports going forward.
Ovoot Project development
The company is targeting early production of washed coking coal from a first-stage development of the Ovoot Project, known as the Ovoot Early Development Plan (OEDP).
The start of development is linked to the completion of the Definitive Environmental Impact Assessment (DEIA), which has been impacted with access the site to commence the ground activities halted by the deferral of local community engagement meetings due to COVID-19 control measures.
The OEDP and pre-feasibility study is focused on a truck and rail operation to deliver up to 4 million tonnes per annum to end markets in China and Russia.
Infrastructure map showing Ovoot transport route to steel customers
September trial shipment
During the September quarter, a trial shipment of 3,300 tonnes of coking coal was moved by rail from an existing mine in Mongolia to the city of Ulanqab in China, which after beneficiation will be railed further to Tangshan and the Port of Caofeidian.
This is an important target market for Ovoot coking coal as the company plans to truck coking coal from the mine site to access rail at the city of Erdenet.
Strong financial outlook
At the end of the September quarter, the company was fully cashed up, with a cash balance of A$38.5 million to fund the Ovoot Project development and no debt.
This strong financial outlook is partially due to a $33.5 million placement in September 2019, which saw major shareholder Tserenpuntsag Tserendamba increase his holding to 51% and strategically reposition Aspire as a Mongolian led company.
Notably, the placement price was 2.1 cents per share, and with a share consolidation of 10 to 1 in December 19– makes for a placement price the equivalent of 21 cents today which is substantially higher than the current share price.
Funding commitments through to production
In addition, financial support is secure with Tserenpuntsag supplying a letter of intent around provision of a corporate guarantee for up to $100 million to support future project financing for the OEDP and pro-rata equity contributions to maintain a 51% shareholding in Aspire alongside all shareholders to fund Ovoot into production.
The company is confident that the development of the Ovoot Coking Coal Project will leave Aspire well placed to take advantage of any shift from China away from Australian coal.