Viking Mines signs second coal MoU with Mongolian power authorities

Viking Mines (ASX:VKA) has signed a second future coal supply agreement with a Mongolian Government power authority for its Berkh Uul Bituminous Coal Project in northern Mongolia.

This further validates the rationale for Viking to takeover Auminco Mines and Berkh Uul’s potential to deliver high quality thermal coal.

The non-binding Memorandum of Understanding was signed with Erdenet Power Plant State Owned Stock Company (EPP), a major supplier of electricity to the Erdenet copper mine.

“The fact that Berkh Uul Project continues to be recognised by the Mongolian Government as a potential key supplier of coal to the EPP is a further significant milestone in the development of the project,” managing director Peter McMickan.

“Auminco’s ongoing discussions with domestic end-users continue to confirm a local industrial demand in northern Mongolia for unwashed Berkh Uul coal, due to its low ash, low sulphur and relatively high calorific value.

“This second MoU provides more evidence of the potential customer base for Berkh Uul’s coal.”

Erdenet Power Plant

The Erdenet Power Plant is a 36 megawatt power plant that consumes about 250,000 tonnes of coal per annum.

The MoU relates to the intent by EPP to enter into future purchase agreements for Berkh Uul coal.

It also establishes a basis for technical evaluation of the quality and quantity of coal, which includes testing of a bulk sample.

This follows an earlier agreement with Darkhan Thermal Power Plant, the major supplier of electricity to Mongolia’s second largest city, the commercial and industrial centre of Darkhan, and the northern region of Mongolia.

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

While not binding, this second MoU from Mongolian power authorities confirm a local industrial demand in northern Mongolia for unwashed Berkh Uul coal, due to its low ash, low sulphur and relatively high calorific value.

Auminco’s ongoing discussions with domestic end-users continue to bear fruit. It is further evidence of the potential customer base for Berkh Uul’s coal.

It is clearly being recognised by the Mongolian Government as a potential key supplier of coal to the EPP which should underpin the development of the Project.

Importantly, this sould fast track the development of Berkh Uul over the next 12 - 18 months.

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.

Our projected valuation for Viking Ashanti is $0.085 to $0.165 per share. This compares to its current share price of $0.04 per share.