88娱乐城
One of a handful of Australia-listed companies with exposure to Mongolia, Hunnu is a standout performer on the bourse this year.
From its oversubscribed 20c per share listing in February, Hunnu shares are now just a few cents shy of a dollar after a string of recent purchases to build up a strategic foothold in the South Gobi region.
While there are plenty of foreign-based explorers seeking riches in Mongolia, Hunnu鈥檚 key personnel were behind the emergence of the country鈥檚 coal mining industry.
Hunnu managing director George Tumur is the former head of mining for major Mongolian conglomerate MCS, and he introduced Leighton and Sedgman to the country.
MCS subsidiary Energy Resources only had four staff when Tumur arrived, but by the time he left its Ukhaa Khudag (UHG) mine was producing 2 million tonnes per annum of coking coal for export into neighbouring China.
The open cut coal mine is the benchmark for what is possible in Mongolia and is on track to ramp up to 10Mtpa in 12 months, with Leighton Asia poised to earn more than $A1 billion of revenue as the mine鈥檚 operator.
Leaving to pursue his own path in the region, Tumur has since poached the mining and geology heads from Energy Resources as Hunnu aims to start full production at its 60%-owned Unst Khudag thermal coal mine in the December quarter.
Like the UHG mine, Unst Khudag is expected to cost less than $5 million for its first stage development, with overburden consisting of just 4m of sand in some places, while the coal seam is up to 31m thick with an average thickness of 20m.
Almost asking to be unearthed, the flat consistent seam dips at 0-5 degrees and the start-up strip ratio is expected to be less than 1:1.
Although the coal holds a relatively high moisture content of 23.9%, the ash content of 13.9% and energy content of 5500-6460 kilocalories per kilogram (air-dried basis) falls within the parameters sought in East Asia.
Hunnu is currently negotiating offtake agreements as various utility companies perform testwork on the 30,000t of coal already extracted.
Unst Khudag鈥檚 coal reserve is about 100Mt, but three rigs are currently drilling to help reach an exploration target of 250-500Mt, while potentially there could be more than 1 billion tonnes in the area and near the surface.
When asked about the prospective mine life, Tumur told ILN it could be 30-50 years even if there is a ramp up to 10Mtpa.
But the strategy of starting small and using cashflow to fund further ramp ups at the UHG mine will also be used for Hunnu鈥檚 operations.
Australian coal projects often require large sums for transport infrastructure, and mines need to focus on tonnage and productivity.
These issues are less relevant in Mongolia where low production costs are the norm.
Tumur said a truck operator in Mongolia would earn about $500 to $1000 a month 鈥� which is considered a good wage.
By comparison, a truck operator in Australia earning $110,000 a year would be nine to 18 times more expensive.
The quality of the raw coal at the Unst Khudag is also good enough to be sold without any processing, and the company鈥檚 other projects in the province also have this advantage.
Given that the main environmental considerations in the sparsely-populated Gobi desert consist of basic dust suppression measures, there are few barriers to starting up mines in the region.
Hunnu executive chairman Matthew Wood said these early operations would be comparable to running a quarry.
鈥淛ust put it on a stockpile then load trucks and wave goodbye,鈥� he said.
鈥淚n Australia you can鈥檛 really start a mine like that. All those easy mines are finished or they require massive infrastructure now.鈥�
With some of the cheapest start-up costs the world can offer, Hunnu expects to quickly move into profitability.
From that point the Unst Khudag operation could be upscaled, either through constructing a wash plant, a new trucking fleet or even a rail line.
Hunnu鈥檚 second mine is likely to be Tsant Uul, 40km south of the giant Tavan Tolgoi coking coal field which is already estimated to hold more than 6Bt of coking and thermal coal.
Starting from just 7m below the surface, the project hosts multiple coal seams of up to 22.8m in thickness.
Hunnu owns 90% of the project and aims to start mining in 24 months, while the current exploration target is 50-100Mt.
Wood said the future mine could double production or construct a wash plant within 48 months.
The company recently scooped up a 60% stake in the 76-hectare Buyan project about 5km north of UHG in the Tavan Tolgoi field.
Hunnu aims to turn the project into a small but lucrative 1Mtpa premium coking coal operation that could benefit from a proposed rail line for the UHG mine.
As for the quality of the hard coking coal in this region, Tumar said it was on par with the coal found at BHP Billiton Mitsubishi Alliance鈥檚 Norwich Park mine in Queensland鈥檚 Bowen Basin.
While the Unst Khudag thermal coal mine will generate healthy cashflow, Hunnu is looking for the bigger returns from coking coal in the South Gobi province.
鈥淚 mean really, if you said this was like the Bowen Basin thirty years ago you would be moving as fast as you could,鈥� Wood said.
Hunnu is investigating another two possible acquisitions in the region.
Mongolia versus Australia鈥檚 resources super-profits tax
Mongolia, like Papua New Guinea, learnt its own lessons about scaring off mining investment through the imposition of profits-based tax on mining.
Both nations lifted these measures once they saw the impact on government coffers.
Mongolia鈥檚 tax impact on Hunnu only consists of 10-25% company tax plus royalties of 5% for export coal and 2.5% for coal sold within the domestic market.
Meanwhile, coal companies in Australia might be facing an effective tax rate of nearly 60% if the RSPT kicks in during 2012.
Wood does not know how the Bowen Basin can compete in those circumstances with Mongolia.
鈥淚 think there is going to be a big shift of investment away from places like the Bowen basin to places like the South Gobi province and that鈥檚 why we have been making acquisitions just about every week there.鈥�
Hunnu鈥檚 share price was not dented by the RSPT controversy, similar to other Australia-listed coal explorers seeking fortune overseas such as Coalspur and Bathurst Resources.
But Wood still thinks it鈥檚 necessary to have a go at the federal government for the unexpected tax proposal.
鈥淏eing an Australian I think it鈥檚 absolutely disgraceful, I mean that they are having a go at the Australian mining industry which is such a success story globally.
鈥淔rom a Mongolian perspective, the Mongolian government is probably extremely happy about it.
鈥淧eople operating in the Bowen have got to be saying we are willing to have a closer look at Mongolia.
鈥淣ow from a risk-to-risk sort of comparison, it鈥檚 looking pretty good.鈥�
Future moves
Hunnu has spent about $7 million of the $20 million raised at its IPO, largely because of its recent spree of acquisitions.
While Hunnu might increase its acreage in South Gobi through more deals, the company still has enough money to kick off mining at Unst Khudag this year.
But a Hong Kong listing in September 2011 is on the cards, which could be a game changer.
SouthGobi Energy Resources and Mongolian Energy Corporation are both Hong Kong-listed and boast market caps exceeding $US2 billion.
But Wood and Tumur suspect the resources held by those companies will not be comparable to Hunnu鈥檚, which is expected to soon release first JORC numbers and has exploration targets of 1000Mt of thermal and coking coal.
