Aspire Mining: High-Quality Coking Coal Project With Low Capex

Investment summary: Closer to production
Aspire's Mining Ltd, (AKM.AX) Ovoot coking coal project is poised to become a supplier of highquality HCC to both Chinese and seaborne markets. With Noble’s backing and a tentative financing package, the lack of a railway remains the only constraint, which once resolved should see the project fully de-risked.

High-quality coking coal project with low capex
Having delivered the revised PFS in late 2012, Aspire recently provided an updated development plan for the project, calling for a substantial reduction in upfront capex while maintaining reasonably low opex. A first-phase 5Mtpa operation is expected to require just US$144m to launch thanks to the extensive use of contractors, modular processing plant and the availability of a low ash bypass coal that does not require washing. Despite a significant capex reduction, the cash cost is estimated at a competitive US$83-93/t (free-on-rail (FOR) China) and US$72/t (FOR Russia) level. We believe Ovoot’s coal is medium volatile hard coking coal (MVHCC) and will only command a small price discount to the premium-quality low volatile Australian benchmarks (eg BMA’s Peak Downs). Test works have also demonstrated that the project’s coking coal has very good blending characteristics, in particular with Tavan Tolgoi coals.

Well-defined export routes
The 5Mtpa operation is expected to be launched by 2017, coinciding with the commissioning of a dedicated railway line to connect the mine with the Trans- Mongolian railway system. It will bring Ovoot’s coal either to China or to the seaborne market through Russia. Being backed by Noble Group (c 15% shareholding), which acts as a marketing agent for Ovoot and has agreed to inject US$20m in working capital, Aspire has signed MoUs giving access to Nakhodka port in the Far East (opening the north Asian market) and Taman port on the Black Sea (Europe). The company has also received non-binding letters of intent from DB and BHF Bank to provide it with US$90m in project funding.

Valuation: Improving mid-term fundamentals
Having made considerable progress on the project with the tentative funding, agreed off-take and port access in place, Aspire needs to remove the final infrastructure constraints to fully de-risk Ovoot. Despite the depressed coking coal market conditions, prices seem to have bottomed out and the mid-term fundamentals now look more supportive of the potential development. However, even at the current coking coal price of US$152/t (Q4 settlement for LVHCC), the project appears profitable based on the revised PFS assumptions.

To Read the Entire Report Please Click on the pdf File Below.