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Aspire Mining Ltd: THE INVESTMENT CASE

Aspire Mining has numerous share price catalysts on the horizon

Studies indicate that the Nuurstei project could become a competitive near-term producer of coking coal.
Picture of coal coming off conveyor belt
INVESTMENT OVERVIEW: AKM The Big Picture
Drilling results, resource upgrades and the results of coal processing trials are potential share price catalysts

Aspire Mining Ltd (ASX:AKM) has two key assets in Mongolia, the wholly-owned Ovoot Coking Coal Project and a 90% stake in the Nuurstei Coking Coal Project.

Ovoot is a world-class asset containing 255 million tonnes of coal reserves which makes it the second largest coking coal project by reserves in Mongolia.

The reserve is largely from a single large open pit mine and supports a 21-year mine life producing up to 10 million tonnes per annum of ‘fat' coking coal.

This is sought after in the Chinese market due to its blend carrying characteristics and the ability to improve coke quality when blended with lower quality coking coals.

Making progress with rail project

The commencement of production from Ovoot is planned to align with the commissioning of the Erdenet to Ovoot Railway.

Aspire only announced last week that it had entered into a new memorandum of understanding (MoU) with China Gezhouba Group International Engineering Co Ltd.

READ: Aspire Mining enters new MoU to progress railway for coal project

The Erdenet to Ovoot Railway extends 549 kilometres between the town of Erdenet and Aspire’s Ovoot Coking Coal Project, both in northern Mongolia, and forms part of the proposed Northern Rail Corridor.

The Erdenet to Ovoot Railway is part of the proposed Northern Rail Corridor.

Having delivered the draft Erdenet to Ovoot rail feasibility study in March 2018, the relevant parties are working quickly to finalise the feasibility study by May 2018.

Potential to ramp-up Ovoot to 10 million tonnes per annum

Examining Ovoot’s production profile, the expectation from the completion of two feasibility studies is that the project will initially produce 5 million tonnes per annum.

A high-quality coal is anticipated, which will be loaded directly onto rail for delivery to markets including China, Russia, Eastern Europe and North Asian countries.

As demand increases, Aspire believes it could ramp up production to 10 million tonnes per annum.

Asset valuations the near-term price driver

While developments regarding infrastructure are important from a longer-term perspective, the most likely near-term share price catalysts lie in the company’s ability to place a value on its assets.

This brings the Nuurstei project under the spotlight as management is targeting first production by the first quarter of 2019.

While Ovoot is potentially a large-scale, long-life project, it will take some time to bring into production.

Consequently, in focusing on near-term value drivers at Aspire, Proactive Investors puts the Nuurstei project under the microscope and assesses imminent share price catalysts.

Plans to upgrade and extend resource

As a backdrop, in August 2017 Aspire exercised its option to acquire a further 45% interest in the Nuurstei project, taking its total interest to 90%.

Nuurstei is being evaluated as a near-term mine development, producing a washed hard coking coal.

The project is about 10 kilometres from the Khuvsgul provincial capital of Moron which has recently been connected to the nearest railhead at Erdenet by a sealed road.

Nuurstei is around 160 kilometres east of the Ovoot project.

In October 2017, the company received a mining licence covering the Nuurstei resource area.

Previous drilling had identified a modest indicated resource of 4.7 million tonnes with 8.1 million tonnes in the inferred category.

A 2018 drilling program has been designed to upgrade and extend the resource base.

It is anticipated that this would support a mine development based on supplying a 1-million tonnes per annum on-site wash plant.

Healthy margins at US$200 per tonne CFR

Preliminary internal cost assessments, which are the subject of confirmation in the feasibility study, point to healthy margins at current pricing which is in the vicinity of US$200 per tonne CFR.

This implies that Aspire as the seller would be absorbing the cost of transport.

Aspire managing director David Paull said: “The market for coking coal remains robust with historically healthy pricing of hard coking coals of the quality that we expect Nuurstei can produce.”

Conceptual mining study indicates positive economic metrics

The key takeaway with Nuurstei is that a conceptual mining study of a near-surface mining area focused on the indicated resource has delivered positive economic metrics.

The study concluded that there was the potential for the Nuurstei project to become a competitive cost near-term producer of coking coal.

This is based on trucking coal 420 kilometres to the nearest railhead at Erdenet, and adopting the strategy of focusing on near-surface mineralisation drives down costs.

Nuurstei not reliant on big-ticket infrastructure projects

Unlike Ovoot, Nuurstei isn’t reliant on a major infrastructure project to be completed, a development that is capital intensive and time-consuming.

That said, costs would reduce significantly once coal from Nuurstei could be transported via the Erdenet to Ovoot Railway.

The Northern Rail Corridor also forms part of China's One Bel One Road initiative.

In the interim though, from a group perspective, Nuurstei would provide valuable cash flow to assist in perhaps expanding its production and/or developing Ovoot.

Share price catalysts leading up to production

There are a number of catalysts that could ignite Aspire’s share price prior to coming into production.

Management expects to have a feasibility study completed by the end of the June quarter of 2018 which will provide a significant insight into the project’s economic viability.

It will also provide investors with a reasonable indication of a likely timeline in terms of moving to production, often the most significant share price catalyst for any mining project.

Drill results and offtake agreements

Other key catalysts are the exploration program being undertaken by Aspire and the outcome of discussions with potential offtake customers in Korea and China.

A 58-hole, 10,000-metre infill and resource extension drilling campaign is targeting shallow open pit mineralisation.

READ: Aspire Mining commences resource conversion drilling ahead of feasibility study

The main objective is to convert a proportion of the inferred resource into the indicated category through additional sampling and for proximate and coal washability analysis.

100,000-tonne mining contract will be a test case

A mining contract has been let to a Mongolian contractor, PSST LLC, to mine 100,000 tonnes of raw coal from a mine adjacent to the Nuurstei mining licence.

This coal will be used by Aspire to test logistics and cost assumptions to be used in the Nuurstei project feasibility study.

Transport of this raw coal is along the existing road and rail facilities for delivery to export markets in China and potentially seaborne markets through Russian rail and ports.

Washable coking coal simulations

At this stage, management is assessing the potential to establish a 1 million tonnes per annum wash plant at Nuurstei, a system that will be employed by PSST LLC.

The coal seams being mined are extensions of the seams in the Nuurstei project and will also be used to provide washed coking coal simulations.

Commercial trial quantities will be used for marketing purposes through toll washing in China.

To assist with logistical operations for the trial, a weighbridge and mobile ash analyser have been acquired.

Along with the current infill drilling program and feasibility study, developments regarding the wash plant viability and associated funding could move the share price. 

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