TerraCom Limited’s Mongolian subsidiary, Terra, has executed an offtake agreement with a wholly-owned subsidiary of China’s Kingho Group for a 5.5 year supply of hard coking coal produced from the BNU Coal Project in the South Gobi region of Mongolia.
Kingho, which is one of the largest private coal companies in China, will primarily use the BNU coal for internal consumption at their coke plants.
The binding long form definitive agreement is for a total of approximately 7.5 million tonnes over the term with pricing linked to a commercially in confidence mine gate pricing structure that reflects the seaborne market. Payment terms are US Dollars in the form of 100% Irrevocable Letter of Credit issued by a first class international bank.
TerraCom says there are a number of positives to be taken from the agreement:
- Confirmation of the strong BNU coal brand in China and recognition of the value-in-use of this coal when compared to other hard coking coal available in southern Mongolia and northern China.
- The point of sale for the coal will be at BNU mine gate. This removes Terra from the requirement to be involved in management of the supply chain in Mongolia and northern China and allows Terra to focus on its core competency of mining, whilst its partner Kingho, which is one of the largest transporters and users of coal in northern China, focuses on delivery to end users.
- The commercial terms of this agreement essentially underwrites a profitable Mongolian business unit allowing the company to recommence operations at BNU in Mongolia delivering the cash margins as previously advised to the market and establishing a platform for further expansion and growth.
Inner Mongolia Kingho Group is a subsidiary of China Kingho Group, which was formed in 1996 and is one of largest privately held mining and energy companies in China. Over recent years, Kingho has developed significant expertise in resources development, coal washing, coal chemical, fine chemicals, clean energy, coal gasification and logistics.
Since 2000, Inner Mongolia Kingho Group has imported more than 26 million tonnes of raw coal from Mongolia and has the annual capacity to wash 8 million tonnes of coal, produce 4 million tonnes of coke, produce 400,000 tonnes of methanol from coke oven off-gas and produce 200 million coal ash bricks. China Kingho Group annually produces 15 million tonnes of coal, processes 12 million tonnes of coal and produces 9 million tonnes of coke.