Viking Mines (ASX:VKA) has signed a third future coal supply agreement with a Mongolian state-owned joint stock industrial company for its Berkh Uul Bituminous Coal Project in northern Mongolia.
This further reinforces the industrial demand for high quality thermal coal from the project and potential to further expand its customer base.
The non-binding Memorandum of Understanding was signed with Darkhan Metallurgical Plant (DMP) located in Darkhan City.
DMP is in the process of expanding its current 100,000 tonnes per annum steel milling capacity, based on commencement of mining of iron ore deposits located near Berkh Uul, with the expansion due for completion in 2015.
“This MOU confirms that there is significant local industrial demand for Berk Uhl coal and gives us great confidence that there is potential to further expand our customer base,” chairman Jack Gardner said.
Memorandum of Understanding
Under the MoU, DMP has stated its intent to enter into future purchase agreements for BU Project coal.
As with the earlier MoU’s from Darkhan Power Station and Erdenet Power Plant, it also establishes testing of a bulk sample as a basis for technical evaluation of the coal.
Berkh Uul
Berkh Uul is 100% owned by Auminco Mines. It is located 400 kilometres north of Ulaanbaatar in Northern Mongolia, and within 40 kilometres of rail access into Russian off-take markets.
It is currently held under an exploration permit that covers 4,550 hectares and is valid until 2015. A Mining Lease application is imminent.
RungePincockMinarco has completed an Independent Geological Report in March 2014 that was based on 45 diamond drill holes and estimated a JORC (2012) Indicated Resource of 21.4 million tonnes, and Inferred Resource of 16.9 million tonnes, for a total of 38.3 million tonnes of near surface and high quality bituminous coal.
Evaluation of raw unwashed coal quality shows: moisture content of 19.8%, ash 15.5%, sulphur 0.37%, and calorific value of 5,323 kcal/kg.
This work also identified the presence of multiple, shallow dipping sub-parallel coal seams on the eastern limb of a gently folded syncline, with individual seams of 0.6 – 4.5 metres over a 3 kilometre strike length that extends to a depth of 200 metres.
Viking has received acceptances for 97.08% of Auminco under its takeover offer of 60.6 Viking Shares and 20.2 Viking Options for every 100 Auminco Shares held.
Analysis
Viking Mines continues to rack up the agreements for the supply of coal to end users in Mongolia, confirming the industrial demand for unwashed Berkh Uul coal, due to its low ash, low sulphur and relatively high calorific value.
It also highlights the potential to further build its customer base, validating the company’s decision to acquire Ausminco Mines.
We believe that Viking Ashanti can develop a small scale operation that could generate a conceptual free cash flow of up to US$3-5 million.
Proactive Investors continues to value Viking Mines at $0.085 to $0.165 per share. This compares to its current share price of $0.04 per share.
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