MONGOLIA - Prophecy increases Ulaan Ovoo coal sales

Prophecy Coal’s Ulaan Ovoo open pit thermal coal mine in northern Mongolia is now the country’s largest supplier to national power plants. 

The company has invested more than $30 million at the site since 2010, building roads and bridges, a mining camp, mining infrastructure and community improvement. Production began in September last year, with a total of 188,915 tonnes delivered to Russia and private Mongolian companies, and the majority to power plants owned by the Mongolian government.

Prophecy has contracts for a further 228,388 tonnes during 2012 with the bulk of these orders going to the Drahan and Erdenet power plants in Mongolia.

Prophecy’s chief executive officer John Lee says, “Ulaan Ovoo produces highly desirable thermal coal of NAR 5100 kcal/kilogram quality to fulfill the regional demand of the thermal coal market. Coal inventory levels at Mongolian power plants this past winter were down to only a few days, which created a national emergency.

“We are committed to delivering our quota to Mongolian power plants in 2012, while continuing to work with the Mongolian government on the 600MW Chandgana power purchase agreement to address the long-term energy needs of this rapidly developing country and at the same time, provide a stable return to our shareholders.”

Prophecy has about 130,000 tonnes of coal in stockpile and the total sales target for 2012 is 300,000 tonnes. During the remainder of this year, the company is expecting production costs to stabilize and capital expenditures at the site to ease.

Prophecy is postponing sales to Russia pending the opening of the Zeltura border crossing and a revised export royalty scheme from the Mongolian Taxation department. It’s hoped the new system will reduce the export royalties Prophecy is currently paying which are almost three times higher than the company’s actual sale price.

John Lee says the company is also preparing a NI 43-101 compliant preliminary economic assessment (PEA) of its Chandgana coal deposit which will incorporate an assessment of the power plant economics and the economic viability of coal production.

The Chandgana property is made up of three licences. Chandgana Tal is in the north-eastern end of the basin. It includes two licences and has a measured resource of 141 million tonnes. Khavtgai Uul is in the south-western end of the basin with a 509 million tonne measured and 539 million tonne indicated resource. These resources are close to important infrastructure including towns, roads, and electric transmission lines and are linked by paved highway to Mongolia’s capital, Ulaanbaatar, and the Trans-Mongolian Railroad.

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