Aspire Mining cleared to build rail for shipping Mongolian coal
Aspire Mining (ASX:AKM) has received a key railway construction licence in Mongolia, setting up advancement of a critical and ambitious infrastructure plan to support the company’s prized Ovoot coal project.
The company’s rail infrastructure subsidiary, Northern Railways, has received its government construction clearance for the Erdenet to Ovoot railway, a project that spans 547 kilometres and forms part of a national policy aimed at connecting the northern provinces with Russia.
At full operation, the project will have capacity to move 30 million tonnes per annum of bulk commodities, agricultural, general and passenger freight including transit freight between Russia and China.
Grant of the licence to Aspire follows the signing of a concession agreement with Northern Railways in September and satisfies a precondition for the start of long-term land use negotiations.
It also allows for the establishment of a commission comprising Northern Railways, the government and Mongolia’s national railway operator to agree on traffic management protocols and the point at which the proposed railway connects to the existing network.
In late August, Aspire secured financing from its rail and financial adviser Signum Resources Corporation to carry out the first stage of the feasibility study for the rail project.
Signum will provide a US$600,000 loan and invest US$200,000 in Aspire equity as part of the effort.
Aspire’s new construction licence for the rail project builds on a string of recent milestones, including a Scoping Study what indicated there were no technical obstacles to building a rail connection from Ovoot to the Russian city of Kyzyl.
This connection, also known as the Steppe Railway, was projected to require capital costs to construct base infrastructure ranging from US$2 million to US$2.6 million per kilometre.
Capital costs for an alignment from Ovoot to Arts Suuri on the Russian border was estimated at US$450 million to US$550 million for the 230-250 kilometre line, while the 300-330 kilometre Arts Suuri-Kyzyl could cost from US$675 million to US$775 million.
The rail will not only service Aspire’s 281-million-tonne Ovoot coking coal project, but is also likely to connect with the company’s secondary Nuurstei property, where the latest exploration work has returned a 5.6-metre intersection of coal from 34.7 metres and 6.94 metres of coal from 61.2 metres.
A maiden coal resource at Nuurstei is expected to be established by the end of 2015.
An exploration target for the project has contemplated a resource of up to 25 million tonnes of coal down to 160 metres depth.
An international vision
Aspire’s investment in the construction of the Erdenet to Ovoot railway is secured by the fact that the project is of significant importance to national interests, not only in Mongolia but in Russia and China as well.
The railway will play an important part in the establishment of an “economic corridor” through Mongolia, the subject of a trilateral agreement signed by the presidents of China, Russia and Mongolia
This economic corridor plan is intended to closely link with Chinese policies to establish a “New Silk Road” to improve Euro-Asian trade, as well as Russia’s policy of establishing a Euro-Asian economic zone.
Encouragingly, the Mongolian government adopted a rail gauge earlier this year which is compatible with Chinese gauges, symbolising a more cooperative relationship regarding rail infrastructure between the two countries.
The provision of a rail construction licence to Aspire represents the important continued support of the Mongolian government to progress the development of the Erdenet to Ovoot corridor.
The feasibility of the project is further underpinned by its status as a government plan across three nations.
This puts Aspire in an enviable position to realise an ambitious infrastructure project capable of allowing for the exploitation of a massive resource which would otherwise be considered stranded by most junior developers.
Over the last three months since the concession was signed, substantial progress has been made in satisfying agreement conditions while Aspire hosted senior executives from a large Chinese banking institution during a visit to Mongolia.
Also, Northern Railways has been actively pursuing funding options to complete the other conditions precedent for the rail concession, including environmental permitting and the completion of a Bankable Feasibility Study.
The systematic achievement of these milestones could provide share price catalysts for Aspire.
Market recognition of Ovoot’s long-term potential is coinciding with global coking coal mine closures which are tipped to cause coal prices to improve from 2016 onwards.