EBRD leads US$350m investment to Tsagaan Suvarga copper mine - benefits Kincorra Copper

EBRD leads US$350m investment to accelerate the development of the Tsagaan Suvarga copper mine, located only ~40km along trend from Kincora Copper.

Last week the European Bank for Reconstruction and Development (‘EBRD’) announced that it would provide a direct US$250m loan and syndicate a further US$100m on the international markets to accelerate the ongoing development of the Tsagaan Suvarga copper mine located in the central part of the highly prospective and proven Oyu Tolgoi south Gobi porphyry copper belt in southeast Mongolia .

The Tsagaan Suvarga project is privately owned by Mongolyn Alt Corporation (‘MAK’), one of Mongolia’s largest national mining companies, and located only ~40km along trend to Kincora’s flagship Bronze Fox project. The US$350m lead investment by EBRD is its largest investment in Mongolia to date (total authorised capital of €21b) and comes with its and MAK’s commitment to support development of new enterprises in the immediate region. These developments are extremely positive for Kincora for the following reasons: reducing the regions infrastructure hurdles; providing a blue print for potential mine development; highlighting the prospectively of the immediate region; enhancing the potential for regional commercial agreements/M&A; and, illustrates current appetite for mining investment into Mongolia, particularly copper. 

Within 140km of Kincora’s 100% owned Bronze Fox project there are now two large scale copper construction projects: Oyu Tolgoi, invested capital to date +US$5.5b and target production of 160,000t/ day ; and, Tsagaan Suvarga, estimated capex US$1b and target production of 40,000t/ day. Kincora has secured a strategic landholding with mineralisation identified over 40km2 and continues to seek the position as the leading independent exploration and development junior in this belt. Please find EBRD’s press release attached with two regional tenement maps. Tsagaan Suvarga project & EBRC summary The Tsagaan Suvarga project is an open pit with estimated resources of 240Mt at 0.53% Cu and 0.018% Mo, inclusive of a smaller oxide resource, with expected capex close to ~US$1b (EBRD project cost estimate of US$869m in Oct’11) supporting name plate mill capacity of 14.6Mtpa (40,000t/ day) producing 354,000tpa and 5,325tpa of copper and molly concentrate respectively. The investment from EBRC follows their board approval in Oct’11 for participation in the project and is the latest sign of investors coming back to support Mongolia post the Jun’12 election. EBRD is owned by 63 countries, two intergovernmental organisations, with authorised capital of €21b (€6b paid-in and €15b callable) and holds a AAA credit rating. Through the project the Bank is aiming to help develop a sustainable mining sector in Mongolia as it introduces high environmental and social standards in the Mongolian copper industry. Since the EBRD began operating in-country in 2006, it has committed ~US$840m across 46 projects in various sectors and mobilising an additional US$1.8b for those projects from other investors. Mongolian-owned mining company MAK and the EBRD have been established business partners in other sectors since 2007. MAK is one of largest mining companies in-country and the MAK Group is the 2nd largest business in Mongolia as ranked by the Government in Mongolia and the Mongolian National Chamber of Commerce. Implications to Kincora The Tsagaan Suvarga project is only ~40km along trend to the west of Kincora’s Bronze Fox project, also located in the Mandakh soum (one of two regional government bodies), and provides a blue print for potential mine development, particularly as it faces very similar infrastructure related barriers to initial production. Tsagaan Suvarga is a significant scale project investing considerable capital into the immediate region (powerline, roads, water, small airstrip, rail loader at Sainshand which is 220km east etc). To help put its targeted 40,000t/ day operation into perspective, initial production at OT is only 20,000t/ day ramping up in stages to the 160,000t/ day target in 2018. Tsagaan Suvarga is expected to become the third largest copper mine in Mongolia with plans to employ 860 people during construction and 1,080 people on a rotational basis during operations. In order to increase sustainability of the Tsagaan Suvarga project and support linkages, MAK and the EBRD are providing joint grants to support the development of small private businesses in the mine’s surroundings. We would expect such advancements will reduce infrastructure related barriers to entry for other development projects and potentially support further commercial agreements and M&A in the immediate region. The investment from EBRD and ongoing development of the Tsagaan Suvarga copper mine highlights again the prospectively of the region around Bronze Fox which includes Tsagaan Suvarga project and Xanadu’s Amgalent and Argelant Uul licenses all within ~ 40km, Shuteen immediately south and Rio Tinto’s/Ivanhoe’s OT and Khamagtai projects ~140km and ~100km SW and W away respectively. Refer to the attached two slides of the immediate region with the regional airborne magnetic (RTP) image presented by Xanadu Mines in a recent presentation (http://www.xanadumines.com/images/stories/XAM_ASX00000088.pdf). The southern Mongolian Palaeozoic magmatic belt hosts most of the known porphyry and intrusive-related mineralization in the south Gobi. Kincora has secured a strategic landholding in this region with mineralisation identified over 40km2 at the wholly owned Bronze Fox Cu/Au and adjacent Tourmaline Hills Au/Cu projects. Recent drilling at Bronze Fox has provided the best indication to date for potential of a deep high grade porphyry deposit. 

Hole F62 intersected 661m at 0.35% Cu, 0.01% Mo and 0.08g/t Au (0.44% CuEq) from 399-1,060m, including 37m at 0.8% Cu (1.07% CuEq) between 573-610m. Of the 1,360 metres drilled (the deepest hole at the project) over 1,000 metres graded +0.40% CuEq. While it is not yet an OT like discovery hole (which was OTD-150 Jul'01 with a 508m interval at 1.17g/t Au & 0.81% Cu from 70m) nor economic mineralisation, this result coupled with the extensive near surface oxide and other sulfide intersections highlights a very large, multi-phase mineralisation event at Bronze Fox. Kincora continues to seek the position as leading independent exploration junior in this belt and the ability to have positive exploration results at Bronze Fox and secure other relatively advanced exploration projects in the region will only enhance this and increase its attractiveness and value to a third party. The ongoing development and recent foreign debt financing of Tsagaan Suvarga is yet another sign that the face of Mongolia will most likely change dramatically over the next 12 months from being perceived as a coal country to copper, as OT ramps up initial production, particularly given the recent weakness in coal pricing. There are now two large scale copper construction projects within 140km of each other and despite being greenfield projects located in the Gobi desert with limited existing infrastructure both are expected to enter initial production within a ~3 year construction period (the final Investment Agreement for OT was only signed in Oct'09), a feat which is unlikely to be achievable in most established copper producing regions for similar scale greenfield projects. 

While there has been recent concerns regarding potential changes to mining and foreign investment legislation the ability of such large scale projects to be constructed in such a short time relative to other established mining regions highlights Mongolia as an attractive location for new mining and infrastructure development. These attributes are enhanced by the south Gobi porphyry copper belt’s short distance to the Chinese border. Small steps forward at a macro level not yet reflected in equity prices The investment from EBRD follows the 'Action Plan' announced last month by the new Government that outlines its four-year agenda. After a significant amount of uncertainty pre and post the June Mongolian election the dust is finally settling with the proposed Action Plan the first formally documented set of policies from the recently formed Democratic Party lead coalition government. The proposed policy platform is supportive of foreign investment (and of much need clarification to the current law), accommodating to the mining industry and generally provides a very positive foundation for progressive reform particularly in light of recent negative headlines/speculation. Subsequent to the Action Plan, parliament has proposal to issue up to US$5b of bonds of Development Bank of Mongolia (‘DBM’) over the next 2 years with the funds are to finance major projects such as rail and automobile road network, power, Tavan Tolgoi (‘TT’) mine and Sainshand industrial hub (whose rail is expected to be used by the Tsagaan Suvarga project). EBRD’s investment in the Tsagaan Suvarga copper mine is the latest sign of investors starting to come back to support Mongolia post the election. The Trade and Development Bank (‘TDB’) recently issued senior notes on the Singapore Stock Exchange worth US$300m and in view provides a real time precedent and positive sign for investment appetite for Mongolia in the capital markets. These transactions, a renewed push towards the domestic and international IPO of TT (which maybe impacted by the current coal price), and a number of very liberal and progressive proposed policy platforms are in time likely to support an improved sovereign risk profile for Mongolia, particularly with the attention initial production from OT and the IPO of TT will create. After a period where uncertainty regarding the election and change of government has acted as a significant headwind for listed mining equities it appears that implementation of the proposed Action Plan, and recent and proposed transactions have the potential to be a positive catalyst with most Mongolian focused listed equities trading near 52 week lows. The recent re-rating of Sirius Resources (SIR.AU) which since late July has traded from.

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