Prophecy Coal provides update on Chandgana power plant project status

Prophecy Coal Corp. (TSE:PCY) (OTCQX:PRPCF) provided Tuesday an update on its proposed 600 megawatt (MW) Chandgana power plant project in Mongolia, relating to the engineering, procurement, and construction (EPC) contract, the power purchase agreement and project financing.
Earlier this month, the company released the results of a feasibility study on the Chandgana Mine-Mouth power plant project, which is to be built next to the company's Chandgana Tal coal deposit from where coal will be supplied.
Construction of the power plant project, which is estimated to have 30 years of commercial operation, is planned to start in April 2013, with the first 150 MW unit being commissioned in October 2015.  The remainder of the units are to be rolled out in April 2016, October 2016, and April 2017.
The study projected an after tax internal rate of return (IRR) of 21.9 percent from the project, and a net present value of US $364.7 million, assuming a discount rate of 12 percent, and a debt interest rate of 10 percent.
The company said Tuesday that in the past three months, four Chinese EPC companies have reviewed the project data, and conducted site visits in Mongolia, while several other international companies have also expressed a written interest in bidding for the contract.
Prophecy expects to have key EPC proposals by March 31, 2012, with the company expecting to have picked a firm by the second quarter. The EPC firm is also expected to bring in a lender for debt financing, the company said.
With regards to the power purchase agreement, the company has been in close talks with the Mongolian Ministry of Natural Resources and Energy for the signing of the deal since Prophecy obtained the power plant construction license last November.
This month, a working commission on the power purchase agreement was constituted, and endorsed by the Minister, with both the company and the commission working together towards a deal. The aim is to have the power purchase agreement and the EPC contract selection finished at the same time.
Separately, Prophecy has met with Chinese government-sponsored policy banks involved in Mongolian projects for project financing, as well as private equity firms focused on international energy production projects.
The company also expects interest in the project from institutional investors. Prophecy said that once a power purchase agreement is signed, it anticipates being able to secure the necessary equity funding this year to move the project towards construction in the second quarter of 2013.
Under the feasibility study for the power plant, it was projected that coal will be supplied by the Chandgana Tal deposit, which contains 140 million tonnes of measured coal, at a steady rate of 2.7 million tonne per year, with the delivered coal price set at $15.50/t with a 2 percent semi-annual price increase.
The electricity tariff is targeted at US $0.06/kWh, with a 2 percent semi-annual increase.
Capital cost is projected to be US $744 million for the 600MW project, or US $1,240 per kW. This includes the power plant, overhead transmission lines, and administrative costs, the company said, but excludes mine development costs.
The company's coal resource is next to a two-lane highway and 150 kilometres from the existing power grid.  Once power and the mine are brought online, there is good potential to introduce additional plant units at lower capital costs, it added.
Prophecy Coal is a Canadian company that has over 1.4 billion tonnes of surface minable thermal coal resources on two coal properties in Mongolia. Its Ulaan Ovoo coal mine is in production and its Chandgana mine mouth power plant has been permitted.