Mongolia has not always been a happy hunting ground for ASX companies – just ask Rio Tinto (ASX: RIO), which is trying hard to deliver sustained value from its Oyu Tolgoi copper project in the southern reaches of the Gobi Desert.
The land made famous by its founding father Genghis Khan has mineral wealth the envy of many other countries. Even more enticing, its neighbours include some of the world’s largest economies in China and Russia, all but underwriting a simply route to market for the iron ore, copper and coal deposits that lie largely untapped.
Aspire Mining (ASX: AKM), a Perth-based company with its hands on a genuinely world-class Mongolian metallurgical coal project called Ovoot, knows as well as Rio that challenges persist in extracting value and returning it to shareholders.
Not dissimilar to many countries in Asia, Africa and South America, it is who you know that can make the difference. Some would argue it is no different in Australia.
Aspire and Rio are among a small gaggle of ASX-listed companies invested in Mongolia. The group includes gold and copper-focused Xanadu Mines (ASX: XAM), thermal and metallurgical coal producer TerraCom (ASX: TER) and coal seam gas proponent Elixir Energy (ASX: EXR).
In Aspire’s case, it has secured the support of Tsedendamba Tserenpuntsag, a former judo champion famous in his home country who has gone on to forge a highly successful career in the private sector in Mongolia and the US.
Already Aspire’s largest shareholder, Mr Tserenpuntsag likes what he sees in the Perth company and Ovoot.
He plans to invest a further $36.25 million by Christmas to support the first-stage development of Ovoot, known as the Ovoot Early Development Plan (OEDP). OEDP is targeted to deliver up to 4Mt of high-quality metallurgical coal a year.
Aspire this week provided investors with details of an updated pre-feasibility study (PFS) – the definitive feasibility study (DFS) remains in progress – that showed OEDP’s up-front capital cost had been cut from $US47 million to $US31 million as a result of forecast lower mining costs and deferred capitalised waste removal. In addition, updated mining contractor-quoted rates had contributed to an 8.4% cut in expected C1 cash costs to $US76 per tonne of coking coal delivered to the Chinese border.
The updated PFS slapped a pre-tax net present value on OEDP of $US878 million, an increase of $US120 million on the previous figure.
It is good news for all shareholders, not just Mr Tserenpuntsag.
His proposed investment in Aspire comprises $33.5 million at 2.1¢ per share as well as the exercise of 153.3 million 1.8¢ options, which are due to expire on 11 December.
Aspire’s shares closed at 1.2¢ yesterday to give the company a market capitalisation of $43.3 million.
Aspire’s shareholders will be asked to vote on Mr Tserenpuntsag’s investment proposal at the company’s annual meeting in Perth on 29 November.
If they approve Mr Tserenpuntsag’s twinned investment, it will increase his shareholding in Aspire from 27.5% to around 52.5%.
The proposed investment has attracted some criticism, including in social media chat rooms, that Mr Tserenpuntsag will control Aspire without launching a takeover.
The other side of the coin, of course, is that a partner like Mr Tserenpuntsag may greatly assist Aspire in delivering on Ovoot’s in-the-ground value, for the benefit of all shareholders.
As Aspire has told shareholders, its lengthy attempt to develop Ovoot has been held up by myriad storm fronts including a cyclical low in metallurgical coal prices, reduced interest from financiers and the challenge of receiving all approvals across the various tiers of goverment in Mongolia.
“The directors of Aspire (other than Mr Tserenpuntsag’s representatives) believe (his equity investment) … will assist in addressing any concerns regarding foreign investor control of a significant asset in this northern region of Mongolia by strategically repositioning the company as a ‘Mongolian’ company,” Aspire said in its ASX announcement on 30 October.
“In turn, this is expected to assist the company to receive the requisite Mongolian permits and approvals to complete the DFS and to proceed to mining at Ovoot in a timely manner.”
It was a theme also picked up by BDO Corporate Finance, which was engaged by Aspire as the independent expert to express an opinion on Mr Tserenpuntsag’s proposed investment.
In its judgment, BDO opinined that Mr Tserenpuntsag’s investment was “not fair but reasonable” because the advantages were greater than the disadvantages.
BDO’s report was thorough and extensive and laid out a compelling case that underpinned the reasons for its opinion.
Aspire’s directors, other than those affiliated with Mr Tserenpuntsag, have unanimously recommended, in the absence of a superior proposal, that shareholders should approve the investment at the November 29 AGM.
Cannings Purple is assisting Aspire Mining with strategic communications.
