Commodities trader Noble Group will help fund a crucial phase of a $2.2 billion Mongolia coal and rail project that Aspire Mining plans to develop, a key endorsement that nearly doubled the Australian firm’s share price on Thursday.
Noble has agreed to partially finance the development of a 580 km (360-mile) railway line that Aspire needs to link the Ovoot coking coal project in northern Mongolia to railways going to Russia and China.
China is the world’s biggest consumer of coking coal, which is used in making steel, as well as the world’s biggest steel producer.
The deal also potentially gives Aspire access to a Russian port in which Noble recently acquired a stake, opening up markets beyond China.
“We have a mechanism now to access the seaborne market, which no Mongolian coal has been able to consistently access previously. So that’s important,” Aspire Managing Director David Paull told Reuters after the company announced the deal.
The railway is estimated to cost $1.3 billion and Aspire said it still requires a concession from the Mongolian government before it can start lining up funding.
Under the agreement, Noble Group will increase its marketing rights to a maximum 20 percent of the coal output from Ovoot, which is estimated to hold the second largest coking coal reserves in Mongolia, according to a recently completed pre-feasibility study.
Noble has also agreed to increase its equity stake in Aspire to 14.9 percent from 10.1 percent for A$2.8 million and has won a seat on the Australian firm’s board.
Aspire’s shares soared 95 percent to a high of 11.5 cents after the announcement, but the stock is trading at a fraction of a record A$1.14 hit last year. Noble is acquiring its new shares at 8 cents a piece.
Aspire aims to start producing coal from Ovoot in 2014 by trucking coal to a rail line, eventually targeting 12 million tonnes a year. It hopes to have its own rail line open in 2016 and is completing studies on the best potential route before applying for the government concession.
“I could see and I would want significant government ownership of that railway, which will benefit not just us, but the greater community there,” Paull said.