The Ovoot coking coal project in northern Mongolia is perfectly positioned to provide a premium blending coking coal to China’s hungry steel mills.

Aspire managing director David Paull told RESOURCESTOCKS there were several reasons the outlook for Ovoot was so strong.

“Mongolia has recently supplanted Australia as the number one supply source of coking coal imports in China,” he said.

“We have a big deposit and arrangements in place to develop infrastructure and transport our coal to China and other north Asian markets.

“Combined with that, we have strong backing from major players in Mongolia and a super high-quality product which will sell to steel mills at a significant premium.”

Ovoot has a significant resource base and the potential to become one of Mongolia’s largest coking coal deposits.

Development plans are based on a 15 million tonne per annum run-of-mine operation, consisting of two washplants for total output of 12Mtpa of low ash coking coal based on indicative 80% yields.

The first washplant is expected to be commissioned in 2016 along with the commencement of mining operations.

Rail infrastructure requirements remain a challenge for Aspire, but it firmly believes the size and quality of the Ovoot resource is more than enough reason to pursue the development of necessary infrastructure.

To date, everything has fallen into place for Aspire.

“We’ve identified significant water supplies on the licence, which is very important with a coal mine and being able to wash,” Paull said.

“Those water resources are on our leases and, in preparation for our bankable feasibility study, we’re establishing a number of water-monitoring bores to evaluate flows so we can quantify the draw-rates to make sure there is enough.”

“We’ve also identified a power source offsite, which is a coal-fired power station about 70km away, and there is a high-capacity power line which we’ll be able to draw from.”

With power and water sorted, labour is the other consideration.

Aspire believes the development of Ovoot and associated rail infrastructure will have enormous benefits for communities in the north of Mongolia.

“Near our Ovoot project there are two soums, which are sub-provinces, with 9000 residents. They lost 400 people last year to look for work in Ulaanbaatar and in the south,” Paull said.

“It’s having a negative impact socially and on education services and we think we can redress this and provide employment opportunities.”

At full capacity the mine will need 700 employees and up to 3000 during construction.

“We can provide these opportunities for what is a very well-educated workforce with a very high literacy rate,” Paull said.

The prospects of the Ovoot coking coal project have been noticed by Aspire’s peers in Mongolia. Ivanhoe Mines subsidiary, TSX-listed SouthGobi Resources, took a 19.9% stake in Aspire via a placement in 2010, and Noble Group acquired a 10.1% holding in Aspire during 2011.

SouthGobi has had an ongoing “top-up” right to maintain is 19.9% holding. However this ends in December 2012.

“The strategic alliance with SouthGobi incorporates access to their people, information and support when operating in Mongolia and that has been very useful to us,” Paull said.

But it’s a separate marketing and logistics alliance with Noble Group signed in November 2011 that could be most helpful as Ovoot moves to production.

Noble showed interest in Aspire by acquiring a 10.1% share on-market and Paull welcomed its presence on the registry.

The vast tracts of land in northern Mongolia have poor infrastructure – nowhere near what is required for a 12Mtpa coal export operation.

“At the moment, the core strengths for Aspire are exploration and development,” Paull said.

“Very soon, logistics will need to be a core strength and the alliance with Noble will help us climb that knowledge curve rapidly.”

“Logistics are key for our project, because to get our coal to customers we’ll have to use a combination of our own and third-party rail systems, and of course ports are another consideration in accessing seaborne markets.“

Aspire is considering developing a 211km proprietary rail line from Ovoot to Moron. From Moron, a 411km multi-user rail would be developed to the nearest railhead at Erdenet.

Aspire’s presence in the area has given hope to other explorers in the same boat including Xanadu Mines/Noble Group through the creation of Aspire’s subsidiary, Northern Railways LLC, which is progressing the development of the 411km Erdenet to Moron rail line.

Aspire, requiring 12Mtpa of capacity and the single largest user, gave Northern Railways the critical mass it required to be feasible.

The recently completed prefeasibility study on the Erdenet to Moron rail line indicated capital expenditure for the 22Mtpa rail development was $US1.1 billion plus contingencies.

“We’re looking at debt and equity funding and there are a number of different parties who are interested in participating,” he said.

“Among them are multi-lateral banks and state-owned enterprises interested in assisting Mongolia.

“Moron is a town of 40,000 people, so any rail line would provide passenger services and facilities for transporting meat and agricultural output from the region.”

Such capex numbers aren’t daunting for Aspire because the appetite for its coking coal is huge and Paull knows end-users will pay a handsome premium for it.

Ovoot coal is a blending feedstock containing a 96-97% vitrinite.

At such a high percentage of vitrinite, Ovoot is one of the best quality blending coals identified anywhere in the world.

“Because it’s so high in vitrinite you can use it with more lower-cost inputs,” Paull said.

“It will make poorer quality coals perform better.

“The rank of the coal is about 1.2, which is a high rank, particularly for a Jurassic Age coal.”

A measure of that ability to carry coal in a blend is called a Gray-King coke type. Good blending coals start at about G8. Ovoot’s is G11 and the highest Gray-King coke type available.

“It’s a premium coking coal. The pricing of this is similar to hard coking coal pricing,” Paull said.

“You can blend it with lower price coals to produce the hard coke. You would add about 10 per cent to your total batch.”

With a high-quality product, strong backing and a firm foothold in the world’s most prospective new coal district, Aspire is one of the best coal investments on the market.

*A version of this report, first published in the June/July 2012 edition of RESOURCESTOCKS magazine, was commissioned by Aspire Mining