Saturday, September 6, 2014

Aspire Mining’s Ovoot to benefit from Russia-Mongolia rail agreement

Aspire Mining’s (ASX:AKM) shares are expected to trade high after its Ovoot Coking Coal Project in Mongolia received a boost after being recognised as a key user of a new rail transit corridor to Russia.

Notably, the Mongolian Ministry of Roads and Transportation (MRT) and JSC Russian Railways (RZD) will investigate an extension of the railway in northern Mongolia from Erdenet past Ovoot to the Russian border at Arts Suuri.

This is significant as it means the feasibility of the key Northern Line Rail Line from Ovoot to Erdenet is no longer solely dependent on freight volumes from the Ovoot Project alone.

The deal follows Russian President Vladimir Putin’s visit to Mongolia this week that resulted in 15 agreements signed covering cooperation in transport and infrastructure, mining, education and communications.

His visit follows Chinese President Xi Jinping’s visit just two weeks earlier, underlying the improved ties between Mongolia and its closest neighbours.

MRT and RZD will also study the following projects:

- Expansion of main Trans-Mongolian Railway including a dual track, and potentially electrified line to facilitate freight capacity of 100 million tonnes per annum;
- Undertake studies to link rail from Arts Suuri to the Kyzyl - Kuragino Railway and thereby Russia’s Trans-Siberian Railway; and
- Cooperation to increase Russian transit freight to China, via Mongolia’s rail network to 20Mtpa.

“Aspire and our subsidiary, Northern Railways, welcomes this important new rail agreement between Russia and Mongolia that explicitly recognises the Ovoot Coking Coal Project as a key user of this new rail transit corridor,” managing director David Paull said.

“This agreement officially puts rail in the north of Mongolia on the map.

“Northern Railways continues to be in close contact with UBTZ (Ulaanbaatar Railways) with regards to working together through the next steps and a joint development of the Erdenet to Ovoot (Northern Rail Line) section.”

Rail Agreement

For Aspire Mining, the highlight of the meeting between Russia and Mongolia was the agreement between the MRT and RZD to a process to modernise and expand the operations and capabilities of Ulaanbaatar Railways (UBTZ).

This includes an investigation into the expansion of railway in northern Mongolia from Erdenet past Aspire’s Ovoot Project to the Russian border at Arts Suuri.

This agreement is consistent with previous announcements regarding increasing trade between Russia, Mongolia and China and improving the transport infrastructure required to do so.

It was reported during this weeks’ meetings that Russia and Mongolia are aiming to improve Russian transit freight to China through Mongolia’s rail network, increasing it from a relatively nominal amount at present to 20 million tonnes per annum by 2020.

Under the agreement, UBTZ and RZD agree on the need for large scale expansion of rail capacity in Mongolia, and will jointly fund feasibility studies to look at a range of rail projects prioritising the following:

- The extension of the existing UBTZ Railway in northern Mongolia from Erdenet - Ovoot (547 kilometres) and from Ovoot - Arts Suuri (215 kilometres) on the Russian border. The studies will also assess a Russian connection which would extend the railway from Arts Suuri to link with the Kyzyl - Kuragino Railway, thereby establishing a new transit rail corridor connecting Russia with China;
- The dual tracking of the main Trans-Mongolian Railway which will lift capacity to 100Mtpa, and in addition, examine the feasibility of electrification of this line. The Trans-Mongolian Railway is already being upgraded to 34Mtpa from a current 20Mtpa capacity, following tripartite agreements between Mongolia, Russia and China entered into late 2013; and
- Upgrading the Erdenet to Darhan rail line to take account of the sharply higher freight volumes that will be passing through Erdenet along the Northern Rail Line.

Notably, the extension of railway from Erdenet, past the Ovoot Coking Coal Project and linking into the Russian rail system to encourage transit freight from Russia, means the feasibility of the Erdenet - Ovoot Project section is now not solely dependent on freight volumes from the Ovoot Project alone.

There is now an expectation of significant Russian transit freight along the Northern Rail Line.

This development ties in and compliments the planned large expansion to the Trans-Mongolian trunk line to provide ample capacity and reduce transport costs to improve the competitive positioning of Mongolia as a source of bulk commodities, particularly coal.

Analysis

The agreement to study an extension of railway from Erdenet, past the Ovoot Coking Coal Project and linking into the Russian rail system significantly improves the feasibility of the Erdenet - Ovoot Project section that would transport coal from Ovoot to Erdenet.

It means the Northern Rail Line is no longer solely dependent on freight volumes from the Ovoot Project alone with potential for Russian transit freight volumes improving its economics.

This is a positive development for Aspire Mining that follows closely on the earlier agreements between China and Mongolia that were designed to boost trade.

The China-Mongolia agreements provide the Ovoot Coking Coal Project more efficient transport across border points; allow negotiations for rail access to a number of Chinese North-Eastern seaports; and potentially access Chinese financing.

Access to seaports will also assist in attracting investment.

Proactive Investors continues to maintain a 6 – 9 months share price target of $0.125 per share subject to the rail concession being granted for NRL.

The rail concession will be a catalyst for a major re-rating of Aspire’s share price.

Aspire had $3.5 million in cash as of 30 June 2014.

No comments:

Post a Comment