Go-ahead for $US 1.2bn Mongolian coal line

THE Mongolian cabinet gave its approval on August 10 for the country's investment agency to proceed with the implementation of a concession agreement to build and operate the 547km Erdenet - Ovoot line, which will connect new coal mining developments in northern Mongolia to the rail network and eventually form part of a new China - Russia link.

The concession agreement will grant Northern Railways, a subsidiary of Australia's Apsire Mining, exclusive rights to build the railway and operate it for 30 years, after which ownership of the infrastructure will pass to the Mongolian government. The deal gives Northern Railways up to five years to complete construction of the line, which will be built by China Railway Construction Corporation (CRCC) subsidiary China Railway 20th Bureau Group (CR20G).

Following the signing of the concession agreement, Northern Railways will need to meet a number of conditions within 18 months, including completion of EPC contract negotiations with CR20G; the conclusion of a bankable feasibility study by another CRCC subsidiary, China Railway First Survey and Design Institute group (FSDI); and arrange financing for the project.

A pre-feasibility study estimates the capital cost of construction will be around $US 1.2bn. The primary purpose of the railway will be to serve Aspire's Ovoot Coking Coal Project, which is expected to generate output of 5 million tonnes in its first year of operation. However, Aspire says the line will be open-access and other operators are expected to use the route.

Together with Russia's planned Kuragino - Kyzyl railway, the Erdenet - Ovoot will ultimately form part of a new corridor for China - Russia freight traffic via the Mongolian capital Ulaanbaatar. The development of the so-called Tri-lateral Economic Corridor is being supported through an international agreement signed by the presidents of the three countries last month, which aims to facilitate increased trade between Europe and Asia.

Northern Railways has recently launched a scoping study for a 180km extension from Ovoot to Kyzyl, which will complete the planned corridor. The study is due to be completed in the fourth quarter of this year.

Mongolia’s Mining Troubles: Opportunity or Calamity?

Several years ago, Mongolia was touted as a hot investment locale for mining companies, given its rich mineral resources – particularly gold, copper, uranium, and coal – and the previously low level of exploration and development.
In 2015, that outlook looks slightly more gloomy.
Throughout 2014, the Mongolian government has been battling with Rio Tinto over the massive Oyu Tolgoi gold and copper mine, with Mongolian officials demanding Rio Tinto pay $30 million in taxes. Rio suspended construction work at the mine in July 2014.
As a result, foreign direct investment in the country declined in 2014 by 81% compared to 2013, according to the Central Bank of Mongolia.
The very public dispute between Ulaan Bataar and a major mining corporation is not the only entanglement Mongolia has had with foreign mining firms.
Khan Resources, a Canadian firm looking to mine uranium in the country, took the Mongolian government to international arbitration in 2011 after the government canceled its licenses to mine the Durnod uranium project in 2009.
Earlier this week, the international arbitration body decided in favour of the Canadian firm, and ordered the Mongolian government to pay $100 million for compensation. The company had initially submitted a claim to recover $354 million in compensation.
The indemnity will be an additional stress for the Mongolian economy, already reeling from the precipitous drop in FDI and crashing commodity prices. Mining accounts for nearly 20% of the country’s gross domestic product.
Silver lining?
But the CEO of Mongolia-based market intelligence firm Cover Mongolia sees reason for optimism on the mining front.
“I think that the verdict that came out is good for Mongolia’s reputation,” Badral Munkhdul told Silk Road Reporters on March 5.
“This shows that investors can have a dispute with the government and it can be settled, and that the government of Mongolia can be held accountable.”
Munkhdul said that the new government of Prime Minister Chimed Saikhanbileg is eager to reverse the missteps made by his predecessor in regards to unpopular changes to the overall mining regime and the cancellation of mining licenses.
Repairing the relationship with Rio Tinto appears to be a top priority of the new government, in power since November 2014. PM Saikhan told a question-and-answer session at the American Chamber of Commerce in Mongolia on March 4 that he would like to have the Rio Tinto/Oyu Tolgoi issue resolved by the end of this month.
The downtick in mining-related investment might also push the diversification of the Mongolian economy ahead at a quicker pace, Munkhdul said.
“What this crisis has taught us is that we need to diversify, or else we’ll be in the same economic cycle that we are in right now,” he said. More focus should be placed on small and medium enterprises, domestic manufacturing, and import-substituting manufacturers.
There is also real potential in Mongolia’s meat exporting industry, he said.
“In Soviet times, Mongolia was a big exporter of meat to Russia, but in the 1990s, Russia stopped buying and we never recovered as a meat exporter,” he said. “No one doubts that there’s a huge potential here. Mongolia has a huge advantage for the whole organic movement to produce non-farmed meat, which I’m sure there will be a huge market for. We could even export to Korea and Japan, but of course I think the biggest customers will be Russia and China.”

Mongolia desperate to kick-start deal - TT

Talks to allow a consortium led by China's Shenhua Energy to take over Mongolia's largest coal mine have yet to be completed, with the project still paying off debts to another Chinese state miner, an official has said.

Mongolia is desperate to kick-start a deal expected to be worth as much as US$4 billion, with foreign investment into the country falling 74% last year, largely because of disputes between companies and the government.

Last year, China's top coal firm Shenhua formed a consortium with Japan's Sumitomo Corp and Energy Resources LLC, a wholly-owned unit of the Mongolian Mining Corp, to take over the management of the Mongolian state-owned firm in charge of the huge Tavan Tolgoi coal deposit.

The mining project in the country's southern Gobi region includes the East and West Tsankhi blocks.

Negotiations with Shenhua were due to be completed before Mongolia's lunar new year in February, but have already missed the deadline, according to Mongolian Minister Mendsaikhan Enkhsaikhan, who oversees Tavan Tolgoi and other giant mining projects.

One challenge is how to handle debts owed to China's Chalco Group by Erdenes Tavan Tolgoi, the Mongolian state-owned firm in charge of the project.

Erdenes Tavan Tolgoi borrowed US$350 million from Chalco in 2011 and agreed to pay back the debt in the form of coal deliveries from its East Tsankhi block. It still owes about US$150 million to the company, as well as other commitments.

The government used most of the funds it borrowed from Chalco to finance a short-lived social welfare programme that distributed about US$15 to every citizen each month.

"After the repayment of outstanding loans to Chalco, Erdenes Tavan Tolgoi still has an obligation to sell 80% of its coal (to Chalco) from the East Tsankhi mine for five years," said Enkhbaatar Myagmarulzii, a project manager working under the minister.

Mongolia has set up a working group to lead negotiations with the consortium, which will be entrusted with developing and managing both the East and West Tsankhi blocks, which hold a combined 1.8 billion t of coking coal.

The Tavan Tolgoi project has attracted the attention of dozens of foreign investment banks and mining conglomerates, but its progress has stalled as a result of financial strains and interference from the government.

Mongolia's previous attempt to find investment for Tavan Tolgoi ended in failure, when its decision to award the project to a consortium consisting of Shenhua, Peabody Energy and a team of Russian and Mongolian firms was criticised by Japanese and South Korean rivals and subsequently annulled.

Erdenes Tavan Tolgoi is also still in dispute with MacMahon Holdings, which was contracted to develop the mine's east block. MacMahon claims it is owed about US$30 million.

"It's a complicated issue, but the working group and consortium are seeking to reach a win-win solution now," said Myagmarulzii

Samsung wins return of material - Roy Hill

The Supreme Court has ordered Laing O'Rourke to hand over construction materials for the Roy Hill iron ore project under a dispute with head contractor Samsung C&T.

Laing O'Rourke left the project last month after failing to resolve commercial differences with Samsung over a $212 million port stockyard construction contract.

Gina Rinehart's majority-owned Roy Hill Holdings told the court that a delay to the $10 billion Pilbara project would cost at least $77 million a month.

Roy Hill chief executive Barry Fitzgerald accused Laing O'Rourke of removing materials and equipment in breach of its contract and a termination agreement struck last month.

"Laing O'Rourke's motive for their actions has been questioned," Mr Fitzgerald said.

"This win allows Samsung and its subcontractors to continue with construction works and maintain the schedule for delivery of this important project."

A spokesman for Laing O'Rourke said the contractor had not removed any materials from site or sought to do so.

"Laing O'Rourke took delivery of materials at the direction of the court last week, with the judge ruling they be stored in a secure compound whilst Samsung's 'emergency relief' application was heard," he said.

The spokesman said the items had been delivered, with the court recommending the matters be referred for further commercial proceedings.

Supreme Court Justice James Edelaman found that Laing O'Rourke had retained the $35 million materials because it claimed not to have been paid in full for the items.

According to the judgment, Laing O'Rourke is claiming about $39 million from Samsung in outstanding payments under their contract.

Samsung claimed to owe the contractor about $17 million, it said.

Contractors Goodline and Civmec have taken over Laing O'Rourke's work on the project.

Roy Hill also said Samsung had also reached a commercial settlement with Leighton Holdings subsidiary Thiess over work on the mine processing plant.

The Thiess contract was originally valued at $330 million.

Mining services sector struggling, The West Australian

The first half-reporting season for the depressed mining services sector is promising to be one of reduced earnings and the odd savage writedown.

Some have already been flagged; there will likely be others which so far have not.

The impairments usually concern writing off goodwill from businesses, or reflecting the sagging values of mining equipment. Investors are reminded that these are non-cash accounting procedures, but they can produce ugly, confidence-sapping losses.

Specialist mining contractor Macmahon Holdings is expected to join some of its peers in slashing its equipment worth by tens of millions of dollars.

Executive chairman Jim Walker - who took the reins last week - may take the familiar route of incoming leaders by giving himself a clean slate. At a miserable share price of 6¢, such a move may already be factored into Macmahon's market worth.

Investors will also be looking for news from NRW over its spat with head contractor Samsung C&T at the Roy Hill iron ore project.

NRW told the market in November that differences over progress payments for a $620 million rail earthworks contract would damage its first-half performance if unresolved by December 31.

At the time, the gulf between the two sides over changes in scope and additional work was believed to be in the tens of millions of dollars. NRW yesterday said there would be no update until next month's half-year report.

Ausdrill last year flagged further impairments of business units after writing down $78 million in goodwill at the full year.

MACA had been an exception in forecasting increased revenue but last week was forced to knock off $30 million when Arrium mothballed a South Australian iron ore project.

The Gresham Mining Services Index of 50 companies fell 24 per cent in calendar 2014, a combined loss of $6.6 billion. Excluding Leighton Holdings, the index fell 17 per cent in the December quarter.

"If the theme of the last two years has been the transition from construction to production, recent months have added an overlay of commodity price volatility," Gresham Investment House said.

"This environment impacts the profitability and in some case viability of current and potential projects. For service providers, it will mean pressure on margins and ultimately order books.

China to study Mongolian mineral line

NORTHERN Railways (NR), the rail infrastructure subsidiary of Aspire Mining, Australia, has appointed China Railways 20 Bureau Group, a subsidiary of China Railway Construction Corporation, to carry out a feasibility study for its proposed 547km Erdenet – Ovoot line in Mongolia.

Aspire says preliminary work on mapping the first 250km of the east-west route is already underway and it has made an initial payment of $US 250,000. Further payments will be conditional on the project receiving a construction concession and funding.

The first stage feasibility study (FSFS) will include a detailed construction schedule and cost estimates for the entire route. If this study is approved, NR will commission a bankable feasibility study to develop the project in more detail. The total cost of both studies will be around $US 6.5m plus VAT.

The most recent pre-feasibility report indicates the railway will require a total investment of around $US 1.3bn plus contingencies, will be funded primarily through an engineering, procurement and construction (EPC) contractor as well as debt and equity sources.

The railway was included in the Mongolian government's recently-published national rail policy and will support Aspire's Ovoot Coking Coal project, which is expected to generate output of 5 million tonnes in its first year of operation. Both the railway and the mine are due to be commissioned in 2018.

In addition to traffic from the mine, the new line is expected to carry general freight and passenger traffic.

Australian miner eyes Botswana’s biggest thermal coal investment

The development of the Trans Kalahari railway line will be pivotal in the viability of the biggest thermal coal mining project in Botswana to date. Even with unguaranteed buyer markets for Botswana coal, emerging market economies such as India and China are set to become major consumers of coal globally, with projected increases in consumption by 2020.

Australian junior miner, Walkabout Resources, this week announced the results of a scoping study into the Takatokwane thermal coal project, in Botswana, estimated that the mine would cost $767 million (P7,5 billion) to develop, the biggest such project in the country to date.

The conceptual operation at Takatokwane was based on two open-pit strip mines, each delivering six-million tonnes a year of coal. Some of the product would be upgraded through a modular two-stage washing plant, and the project was expected to deliver three saleable products.

Takatokwane is located just 195kilometres from the capital, Gaborone, in the southern belt of the Central Kalahari Sub-Basin and is directly accessible by a well-maintained bitumen road. The area was previously drilled by BP Coal Botswana Exploration in the 1970’s and more recently, by Homeland Mining in 2008.

The scoping study was based on the over seven-billion-tonne Joint Ore Reserves Committee-compliant resource at Takatokwane, with the mine design focused on a target mining area where 748-million tonnes had been classified as indicated resource.

“It was always important that we understood the optimum profile for mining the huge Takatokwane deposit. We now know that we will be building large-scale, open-cut strip mines employing drag-lines and rope excavators that will produce coal for many years to come,” Walkabout MD Allan Mulligan was quoted as saying, in statement from the company.

While the scoping study had initially opted for a 12-million-tonne-a-year production rate, Mulligan noted that this could be significantly increased in modular extensions.

Based on the 12-million-tonne-a-year output, the Takatokwane mine was currently estimated to have a net present value of $850-million and an internal rate of return of 14 percent.

However, Mulligan noted that the development of the Takatokwane project remained dependent on the construction of suitable rail infrastructure to move the coal product, which had been targeted for sale to South African power stations and for export through the Port of Walvis Bay, in Namibia.

The government of Botswana is currently investigating the feasibility of the Trans-Kalahari rail project, and the project was slated for completion by 2019/20.

The railway line is expected to unlock the monetisation of Botswana’s coal resources, which are seen as a way to augment the depleting diamond resources that have been the mainstay of the country’s economy.

Aurecon, the consultant for the rail line project, has given the resultant capital expenditure costs at a total of USD14.2 billion (P136 billion), comprising USD8.6 billion for electrified rail, and USD1.9 billion for above rail, and USD3.6 billion for the port.

The finalisation of the Development Plan for the Trans Kalahari Railway line will be possible after the following are completed: Finalisation of Supply Chain Infrastructure;  Master Plan mapping of clusters and connections to copper/manganese; Finalisation of the commercial model assessment for the TKR; Incorporating the commercial outcome from the mine to ship modelling; Finalisation of structure assessment and impact on Government of Botswana; Funding sources identified and the Project Memorandum being developed to engage with the market in the next stage.

Takatokwane has one tenement: PL035/2007 which consists of 500 square kilometres of land holding and is 100 percent owned by Wizard Investments (Pty) Ltd. Walkabout Resources Ltd (WKT) has earned 70 percent of Wizard Investments (Pty) Ltd through its work on the ground to date.

Takatokwane South consists of two tenements: PL157/2009 and PL160/2009; and is 100 percent owned by Triprop Energy (Pty) Ltd. WKT has a 40 percent interest and is earning 65 percent of Triprop Energy (Pty) Ltd.
In August 2012 the Company announced an upgrade to the maiden JORC Inferred Resource giving a combined total of 6.88 billion tonnes of raw coal and a washed Resource of some 3.6 billion tonnes.

In April 2013, the Company announced an Indicated Resource of 478 million tonnes within the Target Mining Area.

Completion of Phase 2 drilling over a targeted zone, where shallow and thicker coal seams coincided with a lower incidence of sulphur, highlighting a large area that would be amenable to large scale surface and strip mining methods, subsequently designated as the Target Mining Area.

In April 2013, the Company commenced with a Pre-feasibility Study over the combined Takatokwane Project, which is this latest coping study, is part of.

Coal firms to press ahead with production in Botswana

Coal explorers in Botswana are pressing ahead with plans to begin production and use existing rail capacity to ports in South Africa and Mozambique, instead of waiting for a line being built to Namibia, the mines lobby said.

“You cannot sit down and wait for the Trans-Kalahari Railway; that would be a disaster,” Botswana Chamber of Mines Chief Executive Officer Charles Siwawa said. “The thing to do is to move on the available capacity and all of them are trying.”

Namibia, on Africa’s southwestern coast, and Botswana are jointly developing the 1500 km (932 mile) Trans-Kalahari Railway to transport coal from the east of the landlocked country to markets in China and India. Mozambique and South Africa, the world’s seventh-largest coal producer, have offered 20 million tpy of railing capacity to Botswana.

Producers in Botswana will rail the fuel to the port in Mozambique’s capital, Maputo and Richards Bay in South Africa, Siwawa said. The coal terminal at Matola in Maputo has capacity of 7.5 million tpy, Grindrod Ltd., the terminal operator that’s continent’s biggest shipping company, said.

Richards Bay Coal Terminal Ltd., the world’s largest export facility for coal, is on South Africa’s northeast coast, with Glencore Plc as the biggest shareholder. Grindrod operates the Navitrade terminal at Richards Bay with RBT Resources (Pty) Ltd. and is developing this into a fully mechanised coal facility with eventual capacity of 20 million tpy.

According to Bloomberg, Botswana’s production plans come as global supply of coal exceeds demand. The US, European and Asian price for thermal coal, which Botswana has in abundance, has fallen for four consecutive years, while metallurgical coal prices have dropped for three.

“Sitting back and waiting for the coal price to improve is unwise, as we believe we have hit the bottom now and the only way is up,” Siwawa said. “Producing now would help them work out the logistics when the Trans-Kalahari is developed as you cannot simply wake up and supply the 60 million tpy it will require.”

Of the seven coal companies active in Botswana, two are at exploration stage and four at pre-feasibility. Jindal Africa, a unit of India’s Jindal Steel & Power Ltd, received a mining license in August and plans to start production for export next year. Shumba Coal Ltd, Hodges Resources Ltd, Walkabout Resources Ltd and African Energy Resources Ltd are among the remaining coal companies.

GDP forecast to grow 5% in 2015, Botswana

Going into 2015, market analysts anticipate a slight growth in the country’s economy to at least 5 percent, which concurs with the government’s projections in the 2015/16 budget strategy paper.

The strategy paper had anticipated that going into 2014 and 2015, domestic economy would grow by 5.2 percent and 5.0 percent respectively driven by the recovery in diamond production. However, the main risk feared by the government was poor performance of mineral exports as it happened in the first quarter of 2014.  Econsult economist, Bogolo Kenewendo has said there is some uncertainty generated by instability in oil prices. When oil prices stabilise to profit level for Organisation of Petroleum Exporting Countries (OPEC) countries, the general global economy will have a good 2015 outlook. The US is anticipated to grow above last year’s 2 percent boasting exports from emerging markets including Botswana.

In this case, Kenewendo is optimistic that, “the diamond industry would benefit from this positive growth and ripple to the domestic economy through government expenditure. Lower fuel prices reduce the cost of doing business and boost business activity. Should these conditions hold, 2015 will be a little better than 2014 with expected growth rates around 5 percent, a slight growth from last year’s expected 4.6 percent.”  Stockbrokers Botswana analysts have observed that as mining continues to register diminishing economic returns, another balanced budget for 2015 is expected, as government moves to create a buffer to counter any exogenous shocks on the horizon.

Based on Debswana’s projected diamond production figures, Botswana, the world’s biggest diamond producer is expected to produce 22 million carats in 2014. The analysts Tshepo Setlhare, Kennedy Kgomanyane and Mooketsi Poane last week indicated in their 2015 outlook research that this is a far cry from the mines’ peak production of 34 million carats in 2007. Evidently they view this as symptomatic of the glut in the precious stones market. However demand is expected to pick in 2015. Diamond revenue, which accounts for 30 percent of Botswana’s GDP and 65 percent of Botswana’s foreign exchange receipts, is expected