Monday, April 14, 2014

Viking Ashanti to fast track coal production in Mongolia within 12-18 months

Viking Ashanti Limited is moving closer to a friendly takeover of Auminco that could see the combined entity become a producer of thermal coal within the next 12 to 18 months.

Auminco shareholders will emerge with a 47% stake in Viking, and play a major role in the evolution of Viking as a participant in the Mongolian thermal and coking coal markets.

Auminco was established by founding shareholders and management of Coalworks Limited which was sold to Whitehaven Coal for USD 200 million in mid 2012.

Viking’s lead project, Berkh Uul is located in northern Mongolia next to a rail link that connects with Russian markets, and provides quick access to domestic power plants and industrial users at Darkhan and Ulaanbaatar.

Near term and low cost production is forecast from Berkh Uul with a JORC resource of 38.3 million tonnes of high quality and low cost open pit unwashed bituminous coal.

Development risk is considered lower than for most Mongolian coal companies as overall CAPEX for Berkh Uul is low by most standards; start up mining rate will not be large with flexibility to build over time with simple and proven mining and processing technology, thus reducing funding and execution risk.

In addition to an expanding domestic market, demand from coal hungry Russia and China is forecast to drive growth in the Mongolian coal market at an exponential rate. Viking Ashanti provides an opportunity to acquire a company valued as an explorer before share price uplift to a producer.

Berkh Uul has potential to generate robust operating cash flows. A small scale conceptual mine may initially produce 500,000 tonnes to 750,000 tonnes per annum of thermal coal, generating free cash flow of USD 3 million to USD 5 million. We have estimated a share price target of USD 0.085 to USD 0.165 within 12 months, with further upside as Berkh Uul moves to increased and value added production. Speculative Buy.

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