Prophecy Coal Corp. (TSE:PCY) announced Thursday it will sell 22,100 tonnes of thermal coal from its Ulaan Ovoo mine in Mongolia to a local, direct reduced iron (DRI) manufacturing plant.
Prophecy said the undisclosed buyer has indicated that the initial
purchase will meet shortfalls from other suppliers, and that it would
eventually like to increase the supply from Prophecy to 300,000 tonnes
on an annual basis.
Shares in the company rose 2.04 percent after the announcement, trading at 25 cents as of 11:00 am EDT.
The buyer currently purchases in excess of 850,000 tonnes of coal annually from various local suppliers, said Prophecy.
The pricing is competitive to offers received from Russia, the
company noted, and sets a benchmark for the continuation of off-take
discussions with other local industries in the growing Mongolian
economy, for which the Mongolian government forecasts 19% GDP growth in
No other details of the agreement were disclosed.
"As we move past the mine establishment phase at Ulaan Ovoo, we
anticipate steadily decreasing operating cost and increasing sales
quantity and price,” said Prophecy chairman and CEO John Lee.
"Our goal is to make Ulaan Ovoo operations cash flow positive in the
near term without relying on Russian or Chinese export markets."
Prophecy said its "high quality thermal coal" (NAR 5100 kcal/kg) is ideal for DRI, which is also known as sponge iron.
DRI is produced from the direct reduction of iron ore in the form of
lumps, pellets or fines by a reducing gas produced from burning coal,
said the company, adding that the coal must be lumpy and of high
Temperature, however, does not have to reach blast furnace levels, and therefore coking coal is not required.
Reducing gas from the coal requires a mixture of hydrogen (H2) and carbon monoxide (CO), which acts as a reducing agent.
Prophecy noted that this process of directly reducing the iron ore in
solid form has been developed to overcome some of the high costs and
difficulties of conventional blast furnaces.
DRI product is one of the chief raw materials in steel-making as it
has higher qualities and advantages compared to scrap irons and pig
irons, the company said. The products have been quoted in China at over
US$300 a tonne.
Looking ahead, the company said it continues to make progress on
opening the Zeltura border crossing - 10 kilometres from its Ulaan Ovoo
mine - to facilitate coal export to Russia, which would then increase
the total demand for Ulaan Ovoo coal past 1 million tonnes a year.
Prophecy is a Canadian listed company focused on developing energy projects in Mongolia.
With its Ulaan Ovoo mine now in production, Prophecy has proposed a
600 MW mine-mouth power plant adjacent to the Chandgana coal deposit, 14
kilometres away from the Ulaan Ovoo mine.
The plant has been permitted by the Mongolian government and
negotiations on financing, power purchase agreements and construction
management are underway.
Earlier this month, the company issued a statement clarifying
previous disclosures related to a feasibility study of its Chandgana
coal deposit, and also said it commissioned a preliminary economic
assessment for Chandgana.
In January, the company issued a statement describing the feasibility
study for the proposed mine-mouth power plant, and said that the report
did not include an economic assessment of the Chandgana coal deposit
under NI 43-101 compliant standards.
Given the report is linked to a specific coal deposit, a coal mine
economic assessment under NI 43-101 is required before any disclosure
can be made regarding the feasibility of a power plant project, as
"economics of each is integral to the other", the company said.
As such, until an NI 43-101 economic assessment is prepared for the
Chandgana coal deposit, "no meaningful feasibility study can be prepared
in connection with the power plant," Prophecy said in May.
To address this, the coal producer retained John T. Boyd Co. to
prepare a NI 43-101 compliant preliminary economic assessment for the
The Ulaan Ovoo deposit hosts a measured resource of 174 million
tonnes and has an indicated resource of 34 million tonnes, of which 20.7
million tonnes are classified as a reserve.
Meanwhile, the Chandgana coal property consists of three licenses:
Chandgana Tal, which has a measured resource of 141 million tonnes and
includes two licenses, and Khavtgai Uul – which contains one license and
is located in the southwestern end of the basin – has a measured
resource of 509 million tonnes and a 539 million tonne indicated
In the past, the company said it has grouped its estimated coal
resources on many occasions for the two Mongolian properties, contrary
to NI 43-101.
These resources are only some 14 kilometres apart, and are close to
important infrastructure - such as towns, roads, and electric
transmission lines. They are linked by paved highway to Mongolia's
capital, Ulaanbaatar, and the Trans-Mongolian Railroad.