“We were out there with a stranded asset and now we’re the centrepiece of an international rail corridor — it couldn’t have gone any better,” Mr McSweeney told The Australian. He is the Aspire executive chairman. He voices a strong positive outlook that with recent ministerial agreements that there is now a stronger guarantee of rail financing to service the otherwise isolated northern mine.
as of early September, what do you think as a possible investor?
There are plenty of long-term rail corridor high level ministerial agreement rail corridors around the globe… … most of which lack commercially attractive financing. They are often described as a “wish list” of new projects.
A broad gauge line between Russia and Vienna is one of many such grand designs that are unfunded. Adding capacity to the existing single track un-signaled Russia-China 1,100 km long UBTZ rail line is another now more than a half decade long delayed “wish lists” of freight projects. These and other examples refortify the economic logic that “Political support is not the same as monetary investment”.
At capital costs of $2.5 million to $4 million a kilometer (over relatively flat rural terrain), these proposed rail projects generally require as much as 20 to 30 million net tons of bulk cargo annual movement in order to earn sufficient operating profit to pay off the railroad construction debt and interest capital costs.
Passenger trains? They generally around the world don’t cover their annual operating costs from passenger revenues and almost never cover their share of allocated capital debt and interest payments. Talking about adding passenger capability is only adding costs — not profits.
When finally available for this suggested Mongolian – Russian project, a detailed independent operational and market feasibility report should provide clearer due diligence evidence of these rail corridor prospects. Without that independent assessment, it is prudent for investors to beware.
The current mine projections may be either true or false. I suggest that investors consider the entire opportunity and risk profile.
As one example, Russia RZD has very high capital rail rehabilitation and domestic rail requirements previously announced as strategic initiatives. Where in priority of RZD rail company cash flow do these Mongolian corridor capital needs fall compared to competing RZD domestic Russian rail corridors?
For added background, see: http://m.theaustralian.com.au/business/mining-energy/aspires-ovoot-mine-to-benefit-from-china-russia-trade-corridor/story-e6frg9df-1227516860479