A Mongolian Government power authority has signed an initial non-binding Memorandum of Understanding (MoU) relating to future potential coal supply, with Viking Ashanti's takeover target Auminco Mines.

Auminco, an unlisted public coal development company, is the subject of a takeover offer by Viking. To date more than 92% of Auminco’s shareholder base has accepted the offer which is due to close on May 23, 2014.

Viking Ashanti managing director Peter McMickan says the MoU signed with Darkhan Thermal Power Plant (DTPP) is an important step for Auminco’s Berkh Uul Bituminous Coal Project in northern Mongolia. “The fact that the Berkh Uul project has been recognized by the Mongolian Government as being a potential key supplier of coal to the DTPP is a significant milestone in the development of the project.

“Auminco’s discussions with nearby cement works and power stations had already confirmed a local industrial demand for unwashed Berkh Uul coal, due to its low ash, low sulphur and relatively high calorific value. This MoU provides further evidence of the potential customer base for Berkh Uul’s coal.”

DTPP is a Mongolian Government entity and is the major supplier of electricity to Mongolia’s second largest city, the commercial and industrial centre of Darkhan, and the northern region of Mongolia. Currently the DTPP consists of a 47MW power plant that consumes approximately 400,000 tonnes of coal per year. An upgrade to add an additional 35MW capacity is due for completion in 2015. The additional capacity will increase annual coal demand to approximately 600,000 tonnes.

The non-binding MoU, signed with Auminco’s Mongolian subsidiary BRX LLC, relates to the intent by DTPP to enter into future purchase agreements for Berkh Uul project coal. It also establishes a basis for technical evaluation of the quality and quantity of coal prior to price negotiation, which includes testing of a 5000 tonne bulk sample.

Berkh Uul is 200km east of Darkhan City, within 40km of rail access to the existing Trans-Mongolian Railway, which provides a transport link to Darkhan to the south and Russia to the north.

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