TERRACOM Limited has completed recommissioning the Baruun Noyon Uul (BNU) Coking Coal Project and the mine is in full production. This follows the signing of a binding long form offtake agreement with a wholly-owned subsidiary of China Kingho Group for a 5.5 year offtake of hard coking coal produced from the South Gobi mine.
The offtake with one of the largest private coal companies in China provides for 7.5 million tonnes of coal sales and will deliver strong and sustainable margins in the current market.
TerraCom was kept busy in 2016 implementing an alternative and more efficient supply chain for BNU. The Kingho agreement was the final piece in implementation of this alternate supply chain.
Kingho will primarily use the BNU coal for internal consumption at its coke plants. Pricing is 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:
- 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, which removes TerraCom from involvement in supply chain management and allows it 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 the agreement essentially underwrite a profitable Mongolian business unit allowing TerraCom to recommence operations at BNU delivering strong cash margins 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. In recent years, Kingho has developed significant expertise in resources development, coal washing, coal chemicals, fine chemicals, clean energy, coal gasification and logistics.
Since 2000, the subsidiary 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, 400,000 tonnes of methanol from coke oven off-gas and 200 million coal ash bricks.